Nigeria’s tax amnesty
The Acting President, Yemi Osinbajo, on Thursday signed Executive Order, No. 004 of 2017, authorising federal and state governments to make room for hitherto defaulting taxpayers to voluntarily declare their assets and income and pay due taxes appropriately without any fear of paying a tax penalty or facing prosecution for default. Tagged the Voluntary Asset and Income Declaration Scheme (VAIDS), it aims to increase tax awareness and compliance and simultaneously generate more revenue for governments while encouraging investment and economic activities. The amnesty gave a nine month time frame (from July 1 to March 31 2018) for Nigerians to comply or risk prosecution.
The motivation for this move is quote obvious. The acting president was clear in his speech at the launch of the initiative that tax compliance especially by the rich, who benefit so bountifully from the country, was abysmal. Quoting figures from the National Bureau of Statistics (NBS), Osinbajo notes that there are 69 million taxable adults in the country but only 14 million are in the tax net. Of this 14 million in the tax net, only 214 people pay tax of N20 million or more annually and another 900 pay N10 million or more annually with majority of them living in Lagos, which also has the highest tax compliance rate in the country.
More revealing is a 2015 Knight Frank wealth report which put the number of Naira billionaires living in Nigeria at 770. With just 214 people paying taxes of N20 million and above, clearly indicates that many naira billionaires in the country are certainly not fully meeting up with their tax obligations and even of those paying, most are under paying. The corporate sector has also been poor with tax compliance especially for small businesses, for most of which the cost of compliance is higher than the cost of avoidance.
A similar programme was initiated last year by the Federal Inland Revenue Service last year and it was claimed to have raise substantial revenue for the government. VAIDS is therefore an extension of that programme in a broader scope.
We must say however, that the revenue projection in this programme – US$1 billion is quite conservative and meagre considering the huge number of individuals who have been defaulting on tax payment. A similar 9-month tax amnesty programme implemented in Indonesia this year raked in US$10 billion. It also resulted in about 970,000 new taxpayers with total assets of US$330 billion being added to the tax net. If Indonesia could raise $10 billion, then Nigeria should be able to raise higher revenues if diligently implemented.
Nigeria’s tax to GDP ratio is acknowledged as one of the lowest in the world at just about six percent of GDP. Neighbouring Ghana has a tax to GDP ratio of 16 percent, which indicates that Nigeria could do better than what it is doing currently in terms of tax collection if it perhaps can put in similar effort like Ghana in collecting taxes.
Nigeria, since the early 1970s when the oil boom began, deemphasised tax payments and whittled down its capacity to levy and collect taxes. It rather depended heavily on revenues from crude oil such that 90 percent of Nigeria’s foreign exchange and over 70 percent of all government revenues come directly from oil. However, the collapse of oil prices recently has set alarm bells ringing and the government mulling new ways to raise non-oil revenues.
Indeed, the government is right in trying to develop smart and effective means to compel Nigerians to pay their fair share of taxes. Indeed, taxation is the most concrete expression of the social contract between the people and the state and citizens, like in other parts of the world, must be made to perform their duties to the state. However, the state must also realise that the social contract is, as well, an interplay of rights/privileges and duties/obligations. Just as much as it demands from citizens to perform their duties, the state is also obligated to perform its duties to maintain a healthy contractual union between citizens and the state.
Sadly, that is where the problem comes from. Successive Nigerian governments (both military and democratic) have had a history of dereliction of duty. This contributes partly to the problem of low tax compliance in Nigeria.
Nigerian businesses operate in a terrible environment and continue to exist in spite of and not because of the government. Nigerian business men and women are therefore loath to support a government that exist to make things difficult for them and cripple their businesses rather than help them grow.
We think the government should diligently follow through this plan, ensure that all Nigerians, especially the well-to-do, are compulsorily dragged into the tax net and clamp down forcefully on defaulters.
This is a positive development for the nation as emphasise on tax will definitely enrich the social contract and advance the cause of government accountability.