The Minister of Finance, Mrs Kemi Adeosun, has once again read the riot act to tax evaders in the country. According to her, the Federal Government would come hard on the tax dodgers from next April when the grace period for voluntarily assets and income declaration would have been over.
In this interview, she explained that it would no longer be business as usual, and reminded everyone that tax evasion is a criminal offence, punishable under the relevant laws.
It’s been five months into VAIDS. How has the response been?
We have had very good responses from companies. So far, we have received $110 million from just 2 companies. One of them paid a liability of $55 million, while the other paid $44 million. Let me give this illustration. If you live in Lagos, Lagos government does not know you run a business in Abuja. Lagos does not know that you have a property abroad, or that you moved some money to Dubai.
Meanwhile Lagos State does not have the jurisdiction to go to the Emirates and say ‘this is my resident. What affiliation does he/she have with your country?’ Largely, no one was really paying the right tax because of these many loopholes. When we did the analysis, only 241 people in country were paying above N20 million. South Africa has 950,000 people paying that equivalent amount. Whereas, some of the richest Africans are Nigerians living very good lifestyles. But because the tax system is so loose, people decided not to pay. The level of non-compliance informed the design of the program.
In jurisprudence, they say if nine out of 10 people comply with the rule, there is nothing wrong with the rule. But, when nine of the 10 people are not complying, then there is a problem with the rule. That’s why we designed the amnesty program, to let people come in and do the right thing. So take that illustration I gave earlier of someone who resides in Lagos and runs a business in Abuja. Maybe the only thing he declares is a salary of N500,000 monthly. Meanwhile, he has a private jet, an expensive yacht; his children are in school abroad, but government doesn’t know. Now, we have pooled all the data together and profiled people.
Once the lifestyle of the person does not match the tax paid, then the person has under-paid their taxes. So far, the response has been very good because people now know we have the data and we’ve proven that we are ready to use it. So we have given people until March before we call them tax evaders. After March, we can officially call them tax evaders; hence we can then name and shame them. Candidly, the response has been very good especially from high net-worth people.
Why should Nigerians be compelled to pay tax when basic amenities are not available?
It is a good argument but it is a flawed one. Today, of the 14 million taxpayers, 90 per cent of them are salary earners and they pay their taxes via P.A.Y.E (Pay Before You Earn). Salary earners are taxed whether they enjoyed amenities or not. So, why is it right for billionaires to make the decision whether to pay tax or not? Should billionaires pay taxes only when government does what they like, while salary earners are forced to pay regardless? Interestingly, these billionaires pay taxes on their property and rents abroad, and they don’t complain.
We have to change that mind-set. Tax will help deepen the social contract between the government and citizens. When people pay taxes, they will take interest in how their leaders are elected. As long as it is oil money, nobody knows how much it was and what to expect. Then the social contract is broken; it is then very difficult to hold government accountable. So, we need to break the cycle of, ‘I will not pay tax until government constructs the roads’. The truth is that those arguments do not benefit the middle class. It benefits the high class people who choose when and when not to pay. Most of the billionaires here made their money in Nigeria, so why should they evade? They make billions in Nigeria and take it to an offshore haven where they still pay tax.
How determined is FG to prosecute tax defaulters after March 31st?
What then will be the advantage to those who complied with scheme if we don’t persecute? We must name and shame the defaulters after the deadline. We will definitely persecute them. In addition, the worst court is that of public opinion. So we have about 500 letters ready, when I spoke to two people that I know of the 500 people, they were begging me to give them the letter personally. The truth is that people don’t want to be embarrassed. Tax evasion is a criminal offence and we will persecute evaders after March 31.
How would you cope with a significant number of people not complying?
It will be very disappointing if a large number of people that should comply do not. That will mean that this work of getting the message out has failed. We are using every means, namely; social media, videos, adverts, website. We have done a lot to get the message out. When we were designing this program, the team went to Indonesia, Turkey, India and other countries that have done big tax amnesties; we found out that once people know you have the data, they will comply. Lagos, Ogun state and FCT have given us their Land registry. We have also gotten data from CAC, FIRS, SEC, CBN, Remita, NIBBS, FRSC, NCAA, among others. There is really no hiding place. Frankly, we are in no hurry. Nigerians have until March to declare, while the government has, from March going forward, to persecute.
What about people in rural areas?
Using the 80/20 principle, the people in the villages are not my problem, honestly. When I was the Ogun State Finance commissioner, even after I chased and chased people in the villages to pay tax, at the end of the day, each person pay about N2000 at most. I am not after chasing people like them. As mentioned earlier, two companies declared their assets and income, and paid a liability of $55 million and $45 million. So, we are concerned with big people that made their money from Nigeria.
Let me give you an example. We asked the Office of the Accountant General to send us the data of every payment over N100 million in the last five years. We then checked FIRS for the data on taxes they paid. These government contractors had declared less than the amount the government actually paid them. This does not even include their other income streams which would have included the transactions they had done with the bank and personally. This was business with the government, yet they weren’t declaring their income aptly.
Nigeria’s tax to GDP ratio is just 6 percent, while Ghana and South Africa are at 15 per cent and 24 per cent, respectively. The numbers do not lie; people are not paying taxes.
Let’s get to the deadline first before we start asking for deadline extensions. Interestingly, on the list of the 500 addressees, the people that are most worried are the politicians. They are the ones pushing to comply before the deadline.
We have built in payment in instalments. We understand that a lot of people may not have the money at their disposal now. As long as people are ready to do the right thing, we will give them time to pay up.
Aggregate amount realised from VAIDS
The scheme has not ended, so it is difficult to answer that question. The declaration forms are filled on a daily basis and we review the declarations against our database. By human nature, people may not declare honestly, so we write back to them telling them that what they had declared is inaccurate.
However, we have two companies that have complied already, as I mentioned earlier. The experience from the study tells that people will want to wait till the last minute to declare. We are expecting a big rush towards the end. There is something in the psyche of Nigerians that leaves everything to the last minute. It is fine, nonetheless, because we will be fully ready when the rush comes. A lot of the processes are automated, hence, there won’t be challenges when the rush comes.
Some government agencies collect taxes and do not remit. What will be done to them?
Rightly, the biggest culprits are the federal and state governments. They have been deducting Value Added Tax (VAT) and Withholding Tax without remitting them. The FIRS has implemented an automated program across all offices of the Accountant General in various states. When a payment is made and tax is deducted, the ministry can now see it. This has improved the level of compliance.
In October, the VAT was N89 billion. This is first time VAT has exceeded oil revenue. Thus, if we continue in this direction, tax will be a sustainable revenue for Nigeria. We have issued a circular to agencies stating that withholding taxes and not remitting them is a disciplinary offence. In the past, they used to withhold tax and place the funds with the bank. With the presence of Treasury Single Account (TSA), there is no incentive to do that any more. What we need to do is to make sure that they remit these taxes. So far, we have seen remittances go up.
With the N89bn from VAT, how would this help our budget deficit?
Our target for VAT is N150 billion monthly. I told the governors not to get comfortable yet with the N89 billion. It is not enough. 85 percent of VAT goes to the states. So, this phenomenon of states owing salaries will end just on VAT revenue alone. Hence, it is really important that we do a massive registration process and we get people paying VAT. The rate for VAT in Nigeria is 5 per cent, which is one of the lowest in the world. So the fact that it is low and we are still not paying is compounding our problems.
Our debt to GDP ratio is low, about 17 per cent. Our debt service to revenue ratio is about 45 per cent. It is too high. When this government came in, we faced a deficit. Every month salaries were N165 billion. What we were getting from FAAC could not even pay salaries. If we had just borrowed to pay salaries, we would have gone from recession to depression. So, we had to borrow for the short term to do capital projects and get the economy moving. The next strategy was to roll out the revenue and tax plans. Consequently, we can then reduce our level of borrowing. Looking at 2018 budget, the borrowing level is lower than that of 2017. It would reduce further going forward as the government expects more revenue to come in. This time last year, we were ready with this tax amnesty programme. But, if I had mentioned anything about tax then, Nigerians would have stoned me. People were in recession then, so we couldn’t tell them to pay tax as the strategy to get out of recession. It wouldn’t have made sense. So we had to wait for economic growth to return. Now the growth is returning, let’s build-in this tax paying culture. Hence, we expect tax to revenue ramping up and our dependency on borrowing declining.
Having said that, governments still borrow all over the world. America’s tax to GDP ratio is over 100 per cnt, Britain’s is at 89 per cent, even Germany, that is the most conservative, is about 70 per cent.
We are also trying to improve our systems in the ministry of Finance such that when we release money, it would be visible to the public. This will enable everyone monitor how the funds are utilised. We are trying to get to a Stage where the public can get the specific information on how much has been allocated for the construction of a particular project.
We are not there yet. At the moment, the information we give is a total amount. For example, N90 billion was released to ministry of works. Frankly, that information is not specific enough to aid Nigerians evaluate government accountability and transparency. What Nigerians really want to know is, what project is in the budget and how much is allocated to each subhead? The Finance ministry is not there yet but we are working on it.