‘How VAIDS will boost tax revenue, development’
Federal Inland Revenue Service boss Babatunde Fowler spoke, in an interview, on tax issues, especially the Voluntary Assets and Income Declaration Scheme (VAIDS). Paula Eseghene reports.
The grace period for tax defaulters is end of this month. What follows the deadline?
What follows the deadline is that we shall follow the laws that deal with tax administration and for those that are not complaint. We shall investigate them and if need be we prosecute them. We shall take all actions in line with the law, which includes the stoppage of their business activities and if need be, the sale of assets.
Will you be prosecuting high net worth individuals and big corporate tax defaulters? Also, is there a possibility of extending the deadline?
The issue of extension does not depend on me. It was a decision and approval by all the tiers of government, meaning that the presidency was aware of it and approved it. The governors approved it. It was taken to the Federal Executive Council (FEC), the Senate approved it, the House of Representatives approved it. So, I don’t have the capacity to change that approval. I think the only person who can, for whatever reason, decide to give an extension would be the President or the Vice President, who oversees the economy, through the Minister of Finance. Every tax defaulter would be prosecuted. People say we should use the 80-20 principle- meaning that we focus on people that give you 80 per cent of your tax revenue. You can say you are a big tax payer and that you have paid N1 billion and because you have paid N1 billion, we should forget the N500 million you are owing.
Meanwhile, somebody who paid N100, 000, paid 100 per cent of his tax liabilities, meaning he was 100 per cent compliant. The organisation that paid N1 billion and still had N500 million left, was only 50 per cent compliant. So, you can’t compare both. Tax is based on profit and income. So, what we look at as tax administrators is the level of compliance. That is, we should use same law for those who are paying N100,000 and those who are paying N1 billion.
What was the target amount for VAIDS and how much have you realised so far?
The target amount we are looking at is $1 billion, which is equivalent of N305 billion; this includes both corporate and individuals. Now, what has come in so far from the corporate angle is about N20 billion; you might think it is small, but from our own experience and the experience of those who have had similar programmes, like Turkey, India or South Africa, is that everybody waits till the last moment. So, we have received a lot of enquiries. We have received a lot of proposals, but in terms of payment, they have not paid yet. So, we believe by mid-March, there would be a better appreciation of the value we are looking at. But for us, N305 billion is doable.
It is believed that some people, who have political connections, cannot be punished by the FIRS. What is your take on this assumption?
I am a nominee of the President and I was approved by the Senate, under the supervision of the Vice President and the Minister of Finance. All of them have assured the FIRS of 100 per cent support and none of them have said we should take political considerations into account. None of them has said we should take the status of persons or corporate organisations into account. So, that tells me that we would do our job the way it was supposed to be done. So, there are no sacred cows.
Can you shed more light on the information that the FIRS has compiled a list of Nigerians with property abroad?
We did that even before VAIDS started. We looked at the number of tax payers that were paying under direct assessment, those who pay N10 million as tax per year and those figures were made public. We found out that in the whole of Nigeria, only 943 individuals paid over N10 million tax. And out of those 943, 941 were from Lagos and two from Ogun State. That tells me that in all the other states of the federation, including the Federal Capital Territory, there is no billionaire or multi-millionaire.
But, when you look at the assets and the vehicles that are on our roads, then you will know that something is wrong. If you look at the average house at Ikoyi or the average house in the high net worth neighbourhoods in Kaduna, Rivers, Onitsha, and other cities, you find houses that are worth over N500 million. So, if an individual has a house worth over N500 million and he did not pay N10 million in tax, where did he get his money from? Now, we are carrying out an exercise on corporate Nigeria and we are doing it nationwide. We started in Abuja, looking at all corporate organisations that own property. We got a valuation of those assets. We found out that over 2,000 properties are owned by corporate organisations that do not pay tax. Now, what the law says is that if you don’t file your returns, we can use an estimated turnover and based on that turnover, we assume you make a profit of 30 per cent and we charge you at 30 per cent.
For example, if your turnover is N100 million, we assume that you make N20 million profit and we charge that N20 million at 30 per cent, then you pay about N6.6 million in tax. We found out that we had properties more than N2 trillion in Abuja alone, under corporate names that did not pay tax. We have sent out assessment and we are in court to get a judgment that would let us seize those houses and sell them. We have concluded Lagos and we are nearly completing Kaduna. I believe without doubt that by the time we complete other states, you will find out that corporate Nigerians with property of such would be in multiple of trillion. The same goes for individuals. The whole idea is that all of us must come together and put our little contribution to make Nigeria work. I was in the United Nations recently and the experts came up with a formula and said if any country’s tax to Gross Domestic Product (GDP) ratio is below 15 per cent, it is highly unlikely that they can expect economic or social development in that country.
In 2016, we were about six per cent. In 2017, through the support of the media, the FIRS was able to cross N4 trillion. Nigeria Customs Service, for the first time in their history crossed N1 trillion. We are looking at the collection of all the states revenue agencies. From the information we have got so far, they equally have crossed N1 trillion. That tells us that in 2017, the Internally Generated Revenue (IGR) from tax would be in excess of N6 trillion. But we believe that for government at all tiers to be able to provide services, we must hit at least, 20 per cent, so that we can start feeling the impact of government.
What kind of support and cooperation do you have from the 36 states?
We have a very good support. Under the Joint Tax Board (JTB), in 2016, we signed a memorandum of understanding (MoU) with all the states’ Internal Revenue Services, to exchange tax information. This meant that all tax companies that were registered by the state were given to us. We equally gave to them the names of all our own tax payers. Some states were able to add close to 100,000 new corporate accounts that were paying tax to the FIRS, but were not paying to them. Likewise, we got over 200,000 companies that were paying to various states but were not paying to us.
So, we were able to expand our tax net just by that single move. We also agreed that we would do what is called joint audit. For example, for a big corporate organisation that has representative in almost all the states of the federation, we said instead of every state chairman coming to audit these companies for tax, why don’t we do a national audit and then we tell every state how much they are owed by the company. A lot of them have not taken up that offer and to our mind, not taking that offer means they want to deal with it individually with each revenue agency. It shows me that a lot of them are not willing to declare freely. To us, that will save them money and it will be more efficient.
Beyond the shores of Nigeria, how do you share data? Are there organisations you collaborate with?
There are quite many countries and we have also signed certain agreements with the OECD to exchange information. That means that they can ask us for information about individuals or corporate entities that transact with us, likewise we can also ask for information. A number of countries have offered to give us information of corporate organisations and individuals who own properties also.
How do you plan to trace those who don’t keep their monies in the bank and use fictitious names in buying assets?
There was a law passed in Britain called the Unexplained Wealth Order. For now, they are dealing with property. It means that if you are a British or a foreigner, you have a house and you can’t show evidence of tax payment based on the income you used in buying that house or you cannot substantiate the source of your income that property would be taken away.
So, some countries have taken this a step further than Nigeria. But a lot of Nigerians have now seen that even if they have property or investments in other countries, those countries are not going to allow them to continue to invest without doing the right thing. I will give you an example, I was speaking at an anti-corruption forum that took place after Evans, the alleged kidnapper was captured. He (Evans) had bought property in one of the wealthiest neighbourhoods in Ghana. He took money there and the Ghanaian authorities did not investigate who he was. They didn’t ask for evidence of his tax. But he was living among the high and mighty. He might have even gone there to open a new branch of his business and they wouldn’t have known. So, countries can say they welcome foreign investors, but they need to probe where the funds are coming from, the line of business such persons do and that they pay their tax.
When will the Common Reporting Standards take off?
It has taken off. But what we should talk about is what it means. It means that you should disclose all your transactions, so that if anyone is looking at your financial statements and reads the note, he or she will understand fully where your money came from, how you made the money and where the money is going.
Now, let me take a step further to the area we call Transfer Pricing. A lot of companies used to just lump large expenditure together and that would reduce profit in one country and they would charge the income to another country where there is a lower tax rate. So, the issue is that countries found out that it was not in their interest. I will give a typical example. In Ireland, Apple had over a billion dollars in tax that ought to be paid to the country and maybe based on investment, the government wanted to give them some benefits, but the EU said no, that they can’t attract further investments at the expense of others by the company not paying the required tax. I think that is what the US President is now saying, that for countries that are taking businesses from America by giving them certain breaks when it comes to tax, that he would bring them back by reducing the tax rate in America. So, every government is promoting its own business and its own business men. That is why this issue of information sharing is very critical.
A category of Nigerians believe VAIDS is not about them and that VAIDS is exclusively for the high net worth individuals and firms. What is your take on that?
Before I go to the direct answer, if your state governor gets additional N10 billion, whether he is good governor, a bad governor or an average governor, he must spend that N10 billion. Assuming he spends half of it on unproductive ventures, the other half is spent on productive ventures. Whether it is by buying medicine, constructing a road, making a park, will it not affect the young people? So, VAIDS may not call for the young people to pay money because the young people don’t have investments, but the result of VAIDS will affect them. So, VAIDS affects all of us – old and young.
There are some individuals based in Nigeria, but work for multinationals and are paid from abroad, how are they expected to pay their tax?
You pay tax where you reside regardless of your nationality. Foreigners, who are posted here for example, are paid. If they earn an allowance for even coming into Nigeria, they are supposed to declare that income and they are expected to pay their taxes here.
How will you deal with issues of corporate organisations that are underpaying their taxes even after deducting same from their workers?
We are addressing it. That is why part of the MoU we signed with the states internal revenue agencies. After they pay the corporate tax and they pay their workers salary, every individual worker must have a tax clearance. And what we are doing on the JTB is that we are consolidating the tax data base. That means that if I am in Lagos, I can hit a button and it will give me your name if you are in Sokoto and your tax profile. So, we are insisting that every worker should request for a tax clearance certificate from their employer. If the employer does not give them, we come in and take up that employer.
Some organisations would deduct your tax from your salary, but they will not remit it, some organisations would charge VAT, but they will not remit it. So, in working with some consultants, we are designing VAT forms and certificates that we would display in every business premises, so that when a customer goes in, the VAT certificate would be displayed to show they are a registered tax payer. So, once they collect the VAT, they must remit it to government.
What are those things FIRS is looking at beyond VAIDS?
If you look at what are looking at getting from VAIDS, it is N305 billion. If you look at the increase in collections between 2016 and 2017, it was over N700 billion. So, if you look at a tax type that we are pursuing vigorously, it is VAT. VAT increased by over N200 billion in one year and it is continuous. What VAIDS will do is that it will bring individuals into the tax net and once they are in, they will continue to pay yearly thereafter. So, it is just one aspect that we are focusing on and we are giving it publicity and letting everybody know that it is an opportunity where we will not ask too many questions, we will not prosecute you. Just come in and do the right thing.
After the deadline, for those you may wish to prosecute, are you foreseeing an avalanche of court cases?
If that is what it takes? We increase the budget for legal fees in our 2018 budget.
Why do you think Nigerians should pay tax when government is not adhering to the social contract because Nigerians provide their own water, security and in some cases, repair the roads that lead to their houses?
If you look at it in terms of the social contract, I read in the newspaper that Governor Ambode just signed a contract for the construction of 284 roads in Lagos State. If people had been paying tax, you will not have to fix 284 roads at once. The roads would have been there before. Now, the roads that were not there before that he is trying to fix from taxpayers’ money, may not be the road in front of your house today, but tomorrow, when he does another 284, maybe it will get to your turn.
But in a situation where for so many years, people were not paying taxes, how do you expect the government to fix the roads? I was in Lagos for 10 years. When we started, the average IGR was N3.6 billion a month. By the time we left, it was N23 billion a month. So, you can imagine all those period of time when government didn’t have money, they couldn’t provide services. In 1999, we had 200,000 individual tax payers in Lagos State. When we left, they were 4.5 million and they still have not captured everybody. So, for those 200,000 that used to pay, they can feel bad, but what can
you do with 200,000 people paying tax? How many roads can you build?
Post -VAIDS, how do you see taxation in Nigeria?
You see, once everybody comes in and we build a credible tax database and the economy starts to boom, every individual and every corporate organisation will be paying their taxes. So, next time you want to go on holiday, you will not say you want to go to Dubai or South Africa; you will go to Ibadan where there will be good roads, trains, and other good things.
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