The Scheme came into effect on July 1st 2017 after the formal guidelines were issued. The Scheme encourages voluntary disclosure of previously undisclosed assets and income for the purpose of payment of all outstanding tax liabilities. The Scheme will offer a limited waiver for declaration within the specified period of time. This VAIDS is expected to help expand Nigeria’s tax base and therefore improve the low tax to Gross Domestic Product [GDP] ratio currently about 6%. It also seeks to curb the use of tax havens for illicit fund flow and tax avoidance.
It is estimated that the Scheme would generate approximately 1billion US Dollars in tax revenues.
Some of the objectives of the Scheme include:
- Discouraging illicit financial flows and tax evasion.
- Improving Tax compliance.
- Promote Tax Culture.
- Increasing Nigeria’s tax to GDP ratio from 6% to 15% by 2020.
- Broadening the Federal and State tax brackets.
- Curbing non-compliance with existing tax laws and discouraging use of tax havens.
Presently, only 214 individuals nationwide pay ₦20 million or more in tax annually. The Scheme would grant some waivers as a reward for voluntary declaration of assets and payment of tax liabilities.
The Scope of VAIDS:
1. All individuals resident in Nigeria
2. All companies operating in Nigeria.
However, the primary targets are:
1. Multinational enterprises and
2. high net worth individuals.
The disclosure requirements would be in respect of all taxes payable to all levels of government – federal, state and local government taxes including Companies Income Tax, Personal Income Tax, Petroleum Profits Tax, Capital Gains Tax, Stamp Duties, Tertiary Education Tax and Technology Tax.
Non- declaration: Any taxpayer who fails to embrace the voluntary disclosure Scheme will be investigated and if found culpable will be prosecuted in addition to full payment of tax due including penalty and interest. The Scheme aims to address tax evasion and illicit financial flows particularly by individuals. Given that there are no formal guidelines yet, the details of the limited waiver are not yet known. The Scheme is in line with global best practices on disclosure of information and declaration of assets.
A similar scheme was adopted in India which resulted in the addition of over 350,000 individuals to the tax net yielding approximately US$1.2 billion. There will be collaboration with foreign governments where assets and illicit funds are likely to be held by Nigerians. Government will leverage on various international agreements including the recently ratified Convention on Mutual Administrative Assistance in Tax Matters which has been signed by over 100 countries
Owing to the above, the Federal Inland Revenue Service (FIRS) intends to increase revenue in 2018 with the proceeds from this scheme thereby raising the IGR significantly.
The Federal Inland Revenue Service, (FIRS) said it is targeting more tax revenue from the implementation of the Voluntary Assets and Income Declaration Scheme, (VAIDS) this year.
Between July 1st when it was launched and December 31, 2017, FIRS Chairman, Mr. Babatunde Fowler, said the Federal government earned about ₦23 billion from the scheme initiated to provide taxpayers with undisclosed income and assets opportunity to regularize their tax status.
The scheme has been described as a viable strategy to boost the country’s low tax-to-gross domestic product, GDP, ratio; currently put at six per cent.
The Minister of Finance, Kemi Adeosun, said last December that VAIDS would help close the gap in earnings from crude oil sales.
The minister said many individuals and corporate organizations with undeclared taxes have been approaching tax authorities to declare and pay up their tax liabilities.
Mr. Fowler said the FIRS was determined to generate more revenue through the scheme for government before the amnesty period was slated to close on the 31st of March 2018 but has now been extended to the 30th of June 2018.
He said since October, 2017, the VAIDS office has been collating financial data of all tax payers in the country by liaising with the various state governments and revenue-generating agencies.
He listed the agencies to include the Federal Inland Revenue Service (FIRS), Nigerian National Petroleum Corporation (NNPC), Central Bank of Nigeria (CBN), Federal Airports Authority of Nigeria (FAAN), Petroleum Technology Development Fund (PTDF) and the National Communications Commission (NCC).
“Data obtained from these agencies will be used to determine companies that have failed to remit taxes on earned income, including those with undeclared assets and corporate organizations that have collected taxes on behalf of government without remitting” Mr. Fowler explained.
He said the various state governments and Abuja authorities have also shown support for the scheme by volunteering to provide transaction data necessary to identify defaulters.
In addition, the chairman said, the VAIDS office would deploy a variety of technology-based tools and international information-sharing agreements, as well as rely on data on contracts and transactions above ₦50 million.
He said such data would be obtained from the Nigerian Customs Service (NCS), Assets Management Corporation of Nigeria (AMCON) and Nigeria Export-Import Bank (NEXIM).
He said such data were currently being matched with those obtained from the FIRS, Corporate Affairs Commission (CAC) and Government Integrated Financial and Management Information Systems (GIFMIS), to determine companies that have not been paying taxes.
It is advisable that defaulters take the plunge and take advantage of the scheme, as the consequences of failure to partake are grevious. When the defaulters are eventually discovered, they would be required to pay all taxes due as well as interests and penalties not limited to the 6 (six) years stipulated by the scheme, but if you voluntarily declare you will benefit from forgiveness of overdue interest and penalties as promised by the scheme.