Less than one week to March 31, when the Voluntary Assets and Income Declaration Scheme (VAIDS) will end, the federal government remains confident of meeting its target of realising $1 billion from the scheme by the deadline. But the government also seems set for a showdown with tax offenders, as it has declared that there is no hiding place for tax evaders. Minister of Finance, Mrs. Kemi Adeosun, in this exclusive interview, tells Kunle Aderinokun that in trying to expand the tax revenue base, the government is also working hard to rebuild trust in its management of funds by improving accountability and transparency. Excerpts
How far has the Federal Ministry of Finance gone with the Voluntary Assets and Income Declaration Scheme (VAIDS)?
I would rather start to answer your question with why we are undertaking the VAIDS initiative in the first place and how it fits into our economic plans. It arises because we really need to increase public investment in infrastructure in order to grow the economy and create jobs. In the short term, in order to reverse the recession, we funded our capital investment and our budget by increased borrowings, but our long-term economic growth acceleration, as outlined in the ERGP, is based on improved revenue mobilisation.
We are already seeing the signs that we can join the more rapidly growing economies, but there is work to be done on a number of fronts and we need to create the fiscal space to act. This is being done by our investments to drive gross capital formation, our focus on efficiency in recurrent spending and our revenue drive. Our current budget size of N7.441 trillion is larger than under previous governments, but in reality needs to be even larger to meet the needs of our growing population and the missing link is revenue collection. VAIDS is just one initiative among many that are part of our Medium Term Revenue Strategy that will ensure that government finances are predictable, sustainable and less dependent on oil.
We analysed the economy and saw that tax collection from both individuals and companies was very low. In fact, it is one of the lowest in the world. This is not something we are proud of as it is a key factor in our underdevelopment. When we collected the data and realised the extent of the non-compliance, we saw that there was a major challenge. This was evidenced by the fact that we could only find 241 Nigerians paying more than N20 million in taxes despite some very lavish lifestyles and huge personal wealth that we decided to offer an ‘amnesty’ to enable people to come forward and regularise. By contrast, South Africa has over 900,000 people paying the equivalent of N20 million or more and they have a lower population and statistically a smaller economy than ours. So, we felt a need to act and do so decisively
So, VAIDS programme offers a grace period of nine months from July 1, 2017 to March 31, 2018, for tax defaulters to declare and regularise their tax status. In exchange for full and honest declaration, the government promises to waive penalties that should have been levied and the interest that should have been paid on overdue taxes.
We have raised the level of consciousness and discussion regarding taxes to a whole new level that we have not seen in the country before. Nigerians are beginning to understand that payment of taxes is not just a civic responsibility but it is also a moral obligation. Secondly, we have been able to gather significant intelligence on Nigerian tax payers, using data from several sources such as records of land registries, bank accounts, tax payment history, etc. We are using this information to nudge tax payers to take advantage of the on-going Tax Amnesty initiative before the window of opportunity closes. Thirdly, the federal government and state governments are coming together to share vital information on tax payers in a way we have not done before. By working together with the state governments and different tax authorities, we will block all the loopholes that tax evaders have been using. In summary, there is no hiding place for tax evaders.
Currently, we are reviewing data of over 130,000 high net worth individuals and companies with potential tax underpayments. The data are being compiled by Project Lighthouse in preparation for the closure of the VAIDS programme by 31st March, 2018.
The data were received from a number of sources including land registries of the governments of Lagos, Kaduna, Kano and Ogun States as well as the Federal Capital Territory. Other States are also in the process of submitting data to the data mining project. We have also requested data from a number of foreign jurisdictions including traditional tax havens under the exchange of information protocols. This information relates to bank records and financial filings for tax purposes and is obtained from tax havens, who are signatories to the information sharing agreements such as British Virgin Islands and Mauritius. The data received from overseas countries would only be used for taxation purposes in line with the protocols governing the exchange of information
What have you observed as the common violations from defaulting tax payers?
The most common finding has been total under-declaration of income. For example, we found someone, who in the last 10 years purchased overseas property, luxury cars, which he registered in his personal name, shares in listed companies and has four children schooling abroad for which he purchased forex and yet the same person paid taxes of just N5 million in the last 10 years, suggesting that his income is less than N25 million per annum. This is very common and it applies to women as well as men. In the past, it was hard for government to track people’s assets, but with technology and with cooperation from overseas’ Governments, everything is now very visible.
Another very common tax evasion strategy is using offshore vehicles in tax havens like British Virgin Islands and Mauritius to hide the true ownership of assets. In those cases, the true owner of a property or asset could be concealed, but now those nations have signed up to the Exchange of Information and are obliged to share with Nigeria the financial and other information relating to such structures, which means that taxable income that was transferred out and hidden overseas is now visible.
The third most common is total non-registration and compliance. There are still many people who are doing business in Nigeria, including business with government, who are not even registered or even conscious that they have an obligation to pay anything in the form of tax.
We are working hard to increase our number of tax payers and the amount of tax collected and we are also working hard to rebuild trust in government’s handling of the funds by improving accountability and transparency. We know that tax must go alongside improved services and better value for money.
Ahead of the deadline, we would like to know the level of compliance – the number of Nigerians both at home and abroad that have taken advantage of the initiative?
It is too early to say, because we know that people are waiting until the last minute.
How much has been collected by the federal government in tax revenue since the launch of the VAIDS?
The tax authorities are still collating the declarations and undertaking the assessments to determine the taxes to be paid by the tax payers. However, as at last month, the federal government, through the Federal Inland Revenue Service, has received about 262 applications from tax payers and the sum of N20 billion has been collected under the tax amnesty programme, but just more than one week ago, another N13 billion declaration came in, so the figures will move up rapidly and we are interfacing with some people, who have very large sums to pay and we are also talking to the state governments to allow them time to pay.
But as I said, when our team went on the study tour, they found that in Amnesty programmes all over the world, many people leave their decisions to the very last minute and as such, we are confident of meeting our target. We expect more people, within the next few days, to take advantage of the scheme.
Has the feedback from VAIDS impacted on the operations of the government positively?
We are getting very positive feedback from the public about the need for more people to comply with the tax laws and that each of us need to pay our fair share of taxes so that governments can have the resources to build the required infrastructure, schools, hospitals, and also secure lives and properties, etc. This is very exciting for us because the people have understood the message and have increased their level of consciousness; they have understood the link between tax and public services. Yes, we still get some skeptical people who ask what government is going to do with the money, but it is obvious if you drive around the nation. For example, we have increased our spending on roads from the N19 billion level that we inherited in 2015 to N307 billion in 2016 and so far this year we have released N284 billion in 2017. Transport, especially rail and airports is even more significant from N6.4 billion to N143 billion in 2016 and N123 billion so far in the 2017 budget year. All this major capital expenditure is what will attract businesses to open and create jobs. Also, for the vulnerable, it is instructive that just N1 million feeds over 14,000 children every day on our school feeding programme. When you see the videos of these little kids from very poor homes and their joy at being fed, it is incredible and with better revenues we would love to do more.
Then if you consider the fact that over 90 per cent of current tax payers are salary earners and some of them are the lower income earners, it means that the burden is being carried by some of the people who earn the least. So, there is a sense of injustice, if we are seen to allow those with more income to evade their fair share of paying for public services.
How optimistic is the federal government with regard to realising the target set for VAIDS, especially the $1 billion mark, by the March 31 deadline?
Based on the feedback and responses we are getting now, we are very confident about the $1 billion target by the time all the declarations are collated by the different tax authorities. The outlook is bright and we are very optimistic in achieving our target by the end of March, 2018.
How is the Ministry of Finance working with the judiciary to actualise the proposed special courts to prosecute tax offenders under the VAIDS initiative?
Many States are working on an accelerated process of specialised courts to speedily dispense with personal tax crimes. I believe this is working well for some environmental offences in certain states and I know that there are plans to replicate this for tax.
Quote: We have raised the level of consciousness and discussion regarding taxes to a whole new level that we have not seen in the country before. Nigerians are beginning to understand that payment of taxes is not just a civic responsibility but it is also a moral obligation. Secondly, we have been able to gather significant intelligence on Nigerian tax payers, using data from several sources