VAIDS’ N17bn revenue offers window view into tax leakages

Nigeria’s 6 percent tax-to-GDP ratio is among the lowest in the world, due to low tax compliance among high net-worth individuals and a large informal sector. The relative success of the Voluntary Asset and Income Declaration Scheme (VAIDS) bears witness to this.

Introduced by the Federal Government in June 2017, VAIDS is designed to shore up government’s non-oil revenue by growing the tax base and ensuring tax compliance.

The scheme is expected to help Nigeria improve its low tax-to-GDP ratio from the current 6 percent to between 12 percent and 15 percent in the first instance. So far, N17 billion has been realised from the scheme, according to Tunde Fowler, executive chairman, Federal Inland Revenue Service (FIRS).

A survey conducted at a tax stakeholder forum organised by PricewaterhouseCoopers (PwC) found that 70 percent of Nigerians said they do not pay taxes because the government cannot justify the use; 22.5 percent said it was due to unclear tax rules and too complex compliance process, and 7.5 percent said it was due to poor enforcement by tax authorities.

One major challenge, and perhaps the biggest contributor to the incidence of tax leakages in the form of tax evasion in Nigeria, is the size of the informal sector, said to account for 57.9 percent of Nigeria’s rebased GDP in 2014. The irregular, non-structured and cash-driven nature of the informal sector, coupled with the paucity of taxpayer data on the part of the tax authorities, has also contributed to tax evasion in Nigeria.

To plug tax leakages, tax authorities at the three tiers of government would have to aggressively deploy technology, which is quasi non-existent currently.

Nigeria moved up from 182 in 2017 to 171 in 2018 in tax payment, according to the World Bank. That is a big win significantly driven by the various reforms by the tax authorities.

There is still a long road to travel, however. For instance, no tax authority in Nigeria has the technology platform that allows you to do your tax transactions online from start to finish. The Integrated Tax Administration System (ITAS), first deployed in 2014, is yet to achieve that.

A proper technology platform should be able to allow taxpayers to file their tax returns, upload schedules, make payment, process tax clearance certificates, obtain credit for withholding tax and respond to queries without going to the tax office.

STEPHEN ONYEKWELU

The writer can be reached via stephen.onyekwelu@ businessdayonline.com or +2348137433034