Enforcing tax laws compliance – Punch

The Federal Government’s extension of its tax grace period by further two months is a clear signal that it has not mustered the strong political will to clamp down on high profile tax dodgers. An Executive Order from the Presidency extending the original March 31 deadline of the Voluntary Assets and Income Declaration Scheme till June 30, 2018, follows on an earlier extension by 30 days, which expired on April 30. While beneficiaries of the reprieve and businesses justifiably applaud, the country’s narrow revenue base suggests, however, that strong measures be applied to compel tax payment and end the reliance on oil and gas.

Analysts were disappointed when, instead of the promised interdiction of tax evaders, after 10 months of grace, a statement from the Presidency confirmed that the government had bowed to pressure to give more time for individuals and companies to pay their backlog of taxes without facing censure. For a country that relies on oil and gas royalties to fund over 70 per cent of the national budget, this is not encouraging. Stronger, resolute action is needed to expand the narrow tax base, diversify revenue sources and make the states less dependent on statutory contributions from the Federation Account for their survival.

VAIDS, an innovative carrot-and-stick device, was launched by the then Acting President, Yemi Osinbajo, on June 29, 2017 as a nine-month amnesty programme to run from July. It affords tax defaulters a window to voluntarily pay their taxes on all previously undeclared assets and income and, in return, enjoy forgiveness from penalties, interest and prosecution as stipulated in extant laws. This allows defaulters to escape sanctions prescribed in the Personal Income Tax Law, the Companies Income Tax Law and the Value Added Tax Law, among others.

As a tax management tool, this accords with recognised practices, according to PwC consultancy. Kemi Adeosun, the Finance Minister, explained that VAIDS is part of the government’s Economic Recovery and Growth Plan and essential to growing the contribution of tax to Gross Domestic Product from the current low six per cent to double digit by 2020. For the organised private sector, the amnesty option is preferable to the big stick, given the low tax compliance rate, the unfavourable operating environment and the ability of high networth individuals to beat the porous financial surveillance system and move assets abroad, beyond the reach of the taxman.

While these are sound, and N17 billion had come in by mid-December, and another N6 billion by the end of 2017, we believe that the government should have followed up with strong enforcement against some recalcitrant defaulters after the initial 30-day extension. Ten months is enough time for those willing to end years of impunity to comply.

Our poor taxation situation is worse than what the ratios tell. In Lagos State that accounts for 65 per cent of manufacturing and finance sectors, only 700,000 individuals and firms pay their taxes out of eight million eligible taxpayers, according to Governor Akinwunmi Ambode. Only 19 million pay various taxes out of 70 million eligible Nigerians, supporting a population of 193 million. Citing Federal Inland Revenue Service figures, Osinbajo disclosed in 2016 that only 214 individuals paid over N20 million in annual PITs. In a country with so many billionaires, luxury homes, vehicles and assets and so much flaunting of personal affluence, this is laughable. The most advanced economies depend on taxation and efficient tax administration. They have very low tolerance for tax criminals, no matter who.

In the United States with tax-to-GDP ratio of 26 per cent, its Internal Revenue Service in 2012 initiated 5,125 investigations of tax evasion or tax fraud and referred 3,701 for prosecution with 2,634 resulting in convictions. The United Kingdom’s Revenue and Customs Service, in 2017, launched fraud investigations leading to 762 individuals convicted for tax crimes, including jail terms and fines.

The time for persuasion and sermons is over; as Adeosun has repeated at several fora, Nigeria cannot become a truly modern economy without a strong tax base. Examples must be made of wealthy tax dodgers and non-compliant companies. The laws should be applied rigorously. The FIRS’ Executive Chairman, Babatunde Fowler, once reported that over 130 individual tax evaders had been identified, just as Adeosun cited an individual who owns houses in Nigeria and abroad, as well as numerous cars but paid only N400,000 annually as income tax.

As promised, the authorities should deploy technology to identify and keep track of assets and their owners and improve tax administration at the federal and state levels. Change will come when states rely less on sharing from the Federation Account and depend on taxes.

Taxation is more impactful when the economy expands and jobs are created. The move to expand the tax base should be accompanied by liberalising initiatives to stimulate the economy through private sector-led investment, attracting foreign investment and privatising state-endowed commercial assets.

The new National Tax Policy adopted by the federal and state governments should be vigorously pursued, not abandoned like previous ones. Reforms are urgently needed at state tax agencies where inefficiency and corruption thrive. The FIRS and Lagos State Internal Revenue Service have taken bold steps in this direction over the years: other states should follow and grant autonomy to tax agencies, a measure the LIRS credited with enabling it to dramatically improve its performance.

Inevitably, corruption, the albatross of the Nigerian state, must be crushed and uprooted from tax administration.

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