Nigerian Tax System and Expectations of VAIDS 

By CITN Education, Research and Technical

Introduction

Much has been said of the government’s Voluntary Assets and Income Declaration Scheme (VAIDS) to leave one pondering at the impact of the scheme on the Nigerian tax system. Voluntary disclosure programme, an integral part of a compliance strategy is an opportunity offered by a tax administration to allow previously non-compliant taxpayers to correct their tax affairs under laid down terms. More details about the scheme indicate that the government is no longer taking its fiscal challenges lightly anymore. To address tax evasion, schemes such as Tax Amnesty, voluntary declaration or disclosure programs have been employed by other Countries. This will probably explain the rationale behind the recently Voluntary Asset and Income Declaration Scheme (VAIDS).
VAIDS is designed to encourage voluntary disclosure of previously undisclosed assets and income for the purpose of payment of back tax liabilities. 
An international forensic and asset tracing company, capable of tracing assets owned by Nigerians, have been engaged while inter-agency syndication of government databases would herald more information gathering about the state of affairs of Nigerians and therefore provide raison d’etre for what quantum of tax is expected from such persons.
This is coming on the heels of information about the Country’s paltry tax to Gross Domestic Product effort of 6% for the entire economy.

Background to VAIDS and Trends in disclosure programs

The US enacted FATCA in 2010 to prevent and detect tax evasion and improve taxpayer compliance. Under FATCA, all U.S. citizens who own offshore assets and foreign financial accounts were enjoined to voluntarily report these assets or accounts to the US IRS. Their foreign financial institutions were also advised to report obligations to the U.S. Department of the Treasury.

As a result of this law, many US taxpayers became aware of their US tax obligations and non-compliance as the case may be. In 2014, the US initiated an offshore voluntary disclosure program that allows US taxpayers to regularise their tax reporting and avoid criminal liability and civil penalties. 
Similarly, in 2014, Australia launched “Project DO IT, as a short-term never-to-be-repeated” opportunity to enable taxpayers correct their offshore tax affairs and be absorbed back into the tax system.

Prior to this, on August 1st 2006, the World Bank formally approved a Voluntary Disclosure Program, a proactive anti-corruption investigative tool designed to uncover corrupt and fraudulent schemes that will strengthen the institution’s capacity to prevent corruption in its operations. 
The VDP allows entities which have “engaged in past fraud and corruption to avoid administrative sanctions” if they disclose to the Bank all such prior misconduct, and satisfy specified terms and conditions. In exchange for full cooperation, VDP participants are exempted from public debarment for disclosed past misconduct, and are assured of the Bank’s confidentiality. 

A voluntary disclosure program has been in existence in Canada for many years. The Canadian VDP allows taxpayers to come forward and correct inaccurate or incomplete information that they have not reported during previous dealings with the Canada Revenue Agency, without penalty or prosecution. 
As in similar programs, it allows taxpayers to come forward and correct inaccurate or incomplete information that they have not reported during past dealings with the Canada Revenue Agency, without penalty or prosecution. 

On 1 January 2013, the Inland Revenue Authority of Singapore (IRAS) issued “IRAS’s Voluntary Disclosure Programme (VDP)”, an updated edition of the e-Tax Guide, which provides guidance on the conditions for a voluntary disclosure to qualify under the VDP. In Singapore, as it is in Nigeria, the Voluntary Disclosure Programme (VDP) is for individuals or companies to voluntarily come forward to disclose errors and omissions committed by them under laws and regulations administered and enforced by Singapore Customs. There is no fixed time period for making a voluntary disclosure. The VDP is applicable to Income Tax, Goods and Services Tax (GST), Withholding Tax and Stamp Duty.
On 24 February 2016, the South African Minister of Finance announced the introduction of a Special Voluntary Disclosure Programme (“SVDP”). Under the SVDP, non-compliant South African taxpayers and Exchange Control residents with undisclosed assets abroad have the opportunity to regularise those offshore assets as well as the income derived from the assets. In early 2017, the SVDP legislation was promulgated with an effective date deemed to be 1 October 2016. The application window closed on 31 August 2017. 
In March 2017, the National Executive Council [NEC] approved the implementation of the Nigerian VAID scheme in principle.

What the Tax man now knows
Knowledge garnered by the taxman is the awareness of disclosure of multiple state of affairs of the taxpayer for a given period of time, with the least rosy one submitted to the taxman. According to the VAIDS website, It is said that this leads to the taxpayer only paying a fraction of the total tax liability due than he would ordinarily have paid under full disclosure. This is probably one of the most significant of the gesture being placed on the table by the government, under this scheme, as financial and tax misstatements are being overlooked in exchange for contrite declaration by the taxpayer.

The taxman is also angling for untaxed incomes used in acquired assets as well as passive incomes from assets. Local property registries across the country stands them in good stead as they scoop and profile taxpayers with information of assets they own. To give a boost to this, the international asset tracing company would soon be hot on the trail of assets owned by Nigerians abroad. Questions how assets not on Nigerian soil affects the Nigerian tax space goes back to our practice of worldwide system of taxation.

For instance and for Personal Income Tax purposes, this means taxation of all income from a source inside or outside Nigeria but with allowance for tax credit against tax payable by the taxpayer and provided such income flows into Nigeria through Government approved channels. The tax credit enjoyed cannot also exceed the proportion of the total tax which the income brought into the country contributed to the total chargeable income of the taxpayer for that assessment year.

VAIDS Duration
The VAIDS commenced on July 1; 2017 and would last through March 31; 2018. It would therefore last for 9 months. Unlike South Africa, Canada, Indonesia, France, Italy and the Netherlands, to mention a few, VAIDS completely waives penalty and interest on past due tax liabilities. The caveat, however, is discontinuation of the interest incentive after December 31; 2017, under the scheme. This means that only the penalty waiver is sustained through January 1 to March 31; 2018 while payment of interest on past due taxes applies, should the taxpayer take advantage of the Scheme during the latter period of the tax amnesty.

VAIDS Coverage
The VAIDS covers all taxes due and receivable by government at various levels. It also includes all matters that have been a subject of tax disputes and appeal presently subsisting. Such taxpayers are afforded faster avenue for resolving their tax issues, with relevant tax authorities, by taking advantage of this scheme.
Community Tax Liaison Officers and Tax Practitioners
The Federal Government has announced the recruitment of 7,500 Community Tax Liaison Officers (CTLOs) through the Npower initiative of the government. The officers would be charged to take the sensitization of the scheme to the grassroots, churches, mosques, NGOs etc. They will also provide guidance to taxpayers on how to take advantage of the scheme to normalise their tax affairs. Those that perform exceedingly well would be given opportunity to enrol for tax certifying exams on their way to developing a career path in that regard. This, should no doubt, be a welcome development for the Institute.

This does not however preclude tax practitioners from seizing the moment to provide advisory services to their clients and prospects. These admonition is particularly useful both now and in post-tax amnesty tax compliance effort by taxpayers. It behoves on tax practitioners, therefore, to cultivate the needed interest in the scheme and engage, frontally, in this regard.

Why everyone should pay attention

Economic activities are always in a state of flux and so also is the dynamics required of the tax system. The taxman appear to be catching up fast much in line with decided tax cases which entitles the taxman to employ all legal provisions and skill at its disposal to take the most revenue out of a taxpayer’s circumstance for the government. It is pretty much akin to saying that ‘We have what it takes to take what you have’. At least, the up side of taking advantage of this scheme lie in assurance of immunity from tax prosecution, confidentiality of information disclosed as well as assurance of no tax audit.

The taxman is deploying technology, mutual cooperation, both at home and abroad, for purpose of boosting the revenue profile of government. The standard for Automatic exchange of Information on tax matters concerning individuals and businesses is soon to come into full effect in Nigeria.
It goes without saying, therefore, that the taxpayer require all the technical skill and dexterity needed to defend itself against this renewed and reenergized onslaught by the taxman.

Conclusion
We at the CITN is supportive of the cooperation of Tax Authorities at the national and State levels as this is required to fight tax evasion as exchanging of information is considered critical in addressing this. It is a welcome development that all the money generated will be shared between the three tiers of government; the CITN is supportive of this gesture and it is hoped the collaboration between states and FIRS will be sustained.

As VAIDS continues to gather support from present and potential taxpayers to take advantage, an appreciation of its impact in the tax system, for good or otherwise, is soon to be felt but not without the active participation and involvement of stakeholders in the tax space which include tax practitioners who hold themselves out for purpose of rendering tax services to the public. 

In conclusion, the CITN cannot but agree more with the OECD on its assertion that- 

“A successful program will: a) be clear about its aims and terms; b) deliver demonstrable and cost-effective increases in current revenues; c) be consistent with the generally applicable compliance and enforcement regimes; d) help to deter non-compliance; e) improve levels of compliance among the population eligible for the programme; and f) complement the immediate yield from disclosures with measures that improve compliance in the longer-term”.

For: Chartered Institute of Taxation of Nigeria
Chief Cyril Ikemefuna Ede, FCTI
President/Chairman of Council