Overview of Voluntary Assets and Income Declaration Scheme (VAIDS)
The Voluntary Assets and Income Declaration Scheme (VAIDS) is a current issue that Nigerians, especially those with significant income have to give very serious consideration in the month of March 2018, if they haven’t done so already.
The Scheme, launched on 1 July 2017 by the Vice President via the Executive Order No 004 of 2017, is a 9-month tax amnesty initiative which seeks to give individuals or companies who have defaulted in their tax payments during previous years, a time-limited opportunity to regularise their previously under-disclosed tax positions with the Relevant Tax Authority (RTA).
The scheme covers all Federal and States taxes such as Companies Income Tax, Tertiary Education Tax, Personal Income Tax, Stamp Duties, Petroleum Profits Tax, Capital Gains Tax and Value Added Tax. The Scheme also covers all corporate and individual taxpayers.
An Executive Order may carry the full force of law, if it draws appropriate authority from the relevant statute or the Constitution itself. The President, in carrying out his constitutional functions, may issue any Executive Order which should serve as an aid to carrying out his executive duties. However, rather than being laws, these Orders only serve the purpose of issuing directives, setting out government policies or commanding action relating to the Executive functions.
Taxpayers should therefore consider the fact that, an Executive Order on its own, is not a law and may be challenged in the court of law if it is found to contravene any clear provision of any of the principal taxing legislations.
Provisions of the VAIDS Executive Order
Taxpayers who wish to take advantage of the Scheme are entitled to certain benefits in exchange for full, honest and verifiable declaration of their assets & income, and paying up their resulting tax liabilities. The benefits include:
- Waiver of full interest and penalty (for all declarations submitted on or before 31 December 2017);
- Waiver of interest only (for all declarations submitted between 1 January 2018 to 31 March 2018);
- Immunity from prosecution for tax offenses;
- Immunity from tax audit; and
- Option of paying any outstanding taxes over a 3-year period with the consent of the Relevant Tax Authority (RTA).
A pre-condition for enjoying the stated benefits is that the tax payer’s declaration must be adjudged as “valid” by the RTA.
The requirements for a valid declaration as stated in the Executive Order are as follows:
- The disclosures by the taxpayer should be voluntary;
- The disclosures must be full, frank, complete and verifiable in all material aspects;
- The disclosures must be made using the VAIDS forms or in any other form or manner as may be prescribed under the Scheme; and
- The assessment of tax payable must be carried out by the RTA.
Stransact Opinion: The process for determining whether a declaration is ‘full’, ‘frank’, ‘complete’ and ‘verifiable’ is not stated in the Order. Tax payers should be aware of a potential audit trap by the RTA and be prepared for this.
Risks Arising: Data Mining Efforts of Government
The Federal Inland Revenue Service (FIRS) has already put in place measures to gather and extract information relating to the income and assets owned by individuals and corporate entities both within and outside the country. The Ministry of Finance says it is currently collaborating with various agencies and tax authorities at both Federal and State levels to create an accurate financial profile of Nigerian tax payers. The Tax Identification Number (TIN), Bank Verification Number (BVN), RC Number and National Identification Number (NIN) are some vital tools currently being used by the government to extract relevant financial data relating to individuals (especially those in the High Net Worth category) and corporate bodies.
Other sources of data currently being harnessed by the Ministry include records from Nigerian Financial Intelligence Unit (NFIU), Foreign Exchange allocation returns, Bureau De Change (BDC), Corporate Affairs Commission (CAC), Central Securities Clearing System (CSCS), Land Allocation and Land Ownership, Foreign Account Tax Compliance Act (FATCA) information, Whistle-blower tips, etc.
Risks Arising: The International Dimension
The assets-tracing team of the Ministry of Finance has engaged international assets-tracing professionals who have been gathering information relating to individuals and companies.
Furthermore, the Federal Government of Nigeria recently signed the Income Tax Country-by-Country Reporting (CbCR) Regulations, which gives effect to the Country-by-Country Multilateral Competent Authority Agreement (MCAA) that was earlier signed and ratified in 2016. The Regulations are part of the implementation plans under Action 13 of the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) project. The CbCR Regulations provide guidance to multinational enterprises (MNEs) on their reporting obligations to the Federal Inland Revenue Service (FIRS) in relation to their group income, taxes paid, and other indicators of their group economic activity.
Risks Arising: UK’s Unexplained Wealth Order (UWO)
In April 2017, the Criminal Finance Act in United Kingdom (UK) introduced the Unexplained Wealth Order (UWO), which seeks to address illicit financial flows, corruption and money laundering in the UK. With the UWO, UK law enforcement agencies can now recover all forms of unexplained wealth acquired through proceeds of crime.
Globally, there are increasing efforts aimed at creating automatic exchange of information platforms amongst various co-operating tax jurisdictions. This will certainly improve Nigeria’s ease of obtaining relevant data on selected tax payers from many other tax jurisdictions.
Stransact Opinion: VAIDS is an opportunity for discerning taxpayers to put their houses in order and undertake a tax health-check so as to remedy instances of noncompliance. More importantly, taxpayers should consider the question of what constitutes relevant information for the purpose of the VAIDS Questionnaire.
Fundamental issues to be considered:
Although VAIDS offers a tax amnesty window for defaulting taxpayers, there are however, certain critical issues which if not effectively addressed, might expose participating taxpayers to certain risks in the application of the scheme.
Nigerian Tax Authorities Lack the Requisite Credibility
Relevant provisions of extant tax laws vest the responsibility of assessing and collecting taxes with the tax officials of the RTA. However, the FIRS and several State Internal Revenue Services (SIRS) have been known to engage the services of independent agents (styled “Tax consultants”) to conduct tax audits on the records of taxpayers, when there are specific provisions in the tax laws forbidding such.
For example, Taxes & Levies (Approved list for collection) Act (amended in 2015), forbids any tax authority across all tiers of Government from delegating its powers to assess & collect taxes, to third-party agents. There are also similar prohibitive provisions in the FIRS Establishment Act (FIRSEA) 2007.
Stransact Opinion: The most effective tax collection mechanisms are built on trust of the citizenry. Taxpayers need to consider very carefully the credibility of all the relevant agencies and parties involved in the implementation of VAIDS.
VAIDS does not foreclose and does not supersede existing tax compliance mechanisms through the tax laws. Taxpayers should consider their rights under the law.
Confidentiality of Information
Although VAIDS promises certain amnesty benefits for participants, taxpayers (especially the Corporates), need to consider the fiduciary responsibilities they owe to their members that may be breached by allowing independent parties that are not empowered by statute to access confidential records.
Stransact Opinion: Are you able to vouch that these third-party agents appointed by the FIRS would comply with the official secrecy and confidentiality clause as stipulated by S.39 (1) & S.50 of the FIRSEA?
Adequate care must be taken by participating taxpayers to ensure that their sensitive information does not fall into the wrong hands. We advise all participating taxpayers to disclose only relevant information for the purpose of this Scheme.
Threats and Exposure to Possible Extortion
The posture of the Tax Authorities and the threat to name and shame creates opportunity for abuse and unwholesome dealings that the current Government has indicated it is seeking to curb. Since Agents are often paid contingent fees based on unproven liabilities, there are loopholes for fictitious assessments aimed at creating unnecessary panic in order to force a “negotiation.”
What should you do?
- Tax Health-Check –Ascertain the potential liabilities.
- Disclose only Relevant Information –It might be necessary to engage a professional to determine “relevant” information.
- Do Not Panic.
Do not hesitate to contact STRANSACT if you require assistance.
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