Introduction of the Voluntary Assets and Income Declaration Scheme (VAIDS)
In February 2017, the Nigerian Federal Executive Council (FEC) approved the National Tax Policy which amongst others, prescribed the following recommendations regarding taxation in Nigeria:
- promoting tax culture;
- improving tax compliance;
- curbing tax evasion;
- widening the tax net as well as improving the tax to Gross Domestic Product (GDP) ratio as core objectives.
In furtherance of this, the Acting President of Nigeria, Professor Yemi Osibanjo issued an executive order on the 30th of June 2017 by virtue of the constitutional powers vested in him ordering the Federal Ministry of Finance to set up the Voluntary Assets and Income Declaration Scheme (“the Scheme”).
Purpose of the Scheme
The scheme is primarily targeted at persons/ entities who have been defaulting in the payment of their taxes, and seeks to bring them within the tax net. The scheme provides a timeframe of 9 (nine) months for persons who have defaulted in paying their taxes, to declare their assets and income derived from sources both within and outside Nigeria for the preceding six (6) years. However, for the declaration of assets and income to be valid, it has to be voluntary, complete and verifiable.
In addition, the scheme is open to persons and entities who are registered taxpayers but have hitherto failed to make full disclosure of their income to the tax authorities or are registered but have not been filing their tax returns. It is also applicable to persons and entities who have been underpaying or under remitting their taxes; persons who are under a process of tax audit or investigation with the relevant tax authority as well as personsand entities currently engaged in tax disputes with the tax authorities and are prepared to settle.
The scheme covers all taxes administered by the Federal Inland Revenue Service (FIRS) as well as thoseadministered by all state boards of internal revenue. These include companies’ income tax, personal income tax, petroleum profits tax, capital gains tax, value added tax, tertiary education tax and NITDA levy
Administration of the Scheme
The scheme would be administered by the FIRS and the state tax authorities. The assessment of the tax payable on the income and assets declared would be made by the tax authorities themselves rather than the usual self-assessment system as provided under the Personal Income Tax Act 2004 as Amended (“PITA”) and the Companies Income Tax Act 1990 as Amended (“CITA”).
Benefits of the Scheme
Participants of the Scheme would enjoy benefits which include immunity from prosecution for tax offences; immunity from tax audit; waiver of interest (till 31 December 2017); waiver of penalties and the option ofspreading payment of outstanding liabilities over a maximum period of three years as may be agreed with therelevant tax authority.
The scheme is a positive step in the right direction for Nigeria as it promises maximum waivers as well as confidentiality of the information disclosed by taxpayers. It would therefore encourage taxable persons to come forward and voluntarily disclose and pay tax for the preceding 6 (six) years, without being subjected to the payment of huge penalties and accrued interests.
Relationship between the Executive Order and the Standard for Automatic Exchange of Financial Account Information in Tax Matters
The Standard for Automatic Exchange of Financial Account Information in Tax Matters (“AEOI Standard”) is the international standard prescribed by the Organisation for Economic Co-operation and Development (“OECD”) and the Global Forum on Transparency and Exchange of Information for Tax Purposes in the area of automatic exchange of information.
The AEOI Standard requires financial institutions to report information on accounts held by non-resident individuals and entities (including trusts and foundations) to their tax authorities. The tax authorities are then required to securely transmit the information to the countries of residence of the account holders annually. With the introduction of the AEOI Standard (which the Acting President has suggested to commence in Nigeria from the 1st of January, 2018), the possibility of tax evasion will be largely reduced. Taxable persons in Nigeria with undeclared assets and income outside Nigeria will be exposed as a result of the exchange of information between foreign tax authorities and the Nigerian tax authorities.
It is advisable that defaulters take the plunge and take advantage of the scheme, as the consequences of failure to partake are grave. When the defaulters are eventually discovered, they would be required to pay all taxes due as well as interests and penalties not limited to the 6 (six) years stipulated by the scheme.
If you are interested in getting more information on how to take advantage of this new scheme and offset your tax liabilities, please feel free to contact us through our contact details as we will be happy to assist you.