Buhari, Go Tough On Wealthy Tax Evaders

A fresh amendment to a legal mechanism against offshore tax evasion could serve as the bold impetus the Federal Government requires to expand its flagging revenue profile. To accomplish this objective, the President, Major General Muhammadu Buhari (retd.), has resuscitated the Voluntary Overseas Assets Regulatory Scheme. In modifying Executive Order 008, he vowed to recover the backlog due to the public treasury by wealthy individuals and corporate organisations that owned assets overseas but had refused to pay their taxes.

Outwardly, this is a hands-on policy, principally because of the lingering economic downturn instigated by the coronavirus pandemic and decline in oil income. Alternatively, as notable as the modified VOARS appears, it could just create sound and fury, with no major accrual to government revenue. Hindsight strongly suggests minimal success. Upon enactment in October 2018, VOARS was regarded as a landmark instrument to boost public revenue, plug leakages and punish defaulters. Despite these lofty ideals, the implementation has been limp. Originally, defaulters – individuals, corporate entities and their intermediaries – were given a 12-month window to regularise their offshore assets by declaring them and paying the levy.

But corruption and tax evasion distort development. In a study conducted by the World Bank in Malawi, it was discovered that corruption was estimated at five per cent of the GDP and tax evasion, at a whopping 8-12 per cent of GDP. This is a huge diversion of financial resources away from the national budget toward private spending in developing countries. The Bank reiterates that for an economy to grow, its (non-oil) tax-to- GDP ratio must not be lower than 15 per cent. Currently, Nigeria’s tax-to-GDP ratio, at about six per cent, falls sharply behind this.

Interestingly, a few months after the amnesty period for offshore assets owners to regularise their possessions expired, the Buhari regime just came out with the amendments. This might imply that not much was achieved in the enforcement of the VOARS, which was spearheaded by the Ministry of Justice. It dampened the regime’s anti-corruption image. Moreover, as Nigeria had just emerged from a recession, the tax collected from VOARS would have given the economy a significant momentum.

That negligence is now very costly. An oil war between Russia and Saudi Arabia, combined with the coronavirus-induced downturn, has pushed the Nigerian economy into a tailspin. From N10.59 trillion, the Federal Government slashed the 2020 budget to N10.27 trillion, cutting off about N32 billion. To get by, it reduced spending on health, basic education and other critical sectors because oil income has shrivelled.

Unfortunately, Nigeria’s record of accomplishment in policy implementation is woeful. A similar strategy, the Voluntary Assets Income Declaration Scheme, has delivered negligible results, despite the threats of the government to clamp down on defaulters, particularly the wealthy. Nigeria rates very poorly in the World Bank’s ease of paying taxes. Corruption, impunity and outdated manual methodology stand out. The government had discovered that out of a 70 million-strong labour force by May 2017, only 14 million paid taxes. This falls far short of the tax compliance rate in other countries.

Tax evaders use byzantine network of shell corporations and secret offshore bank accounts. Some major Western consulting and accounting firms assist wealthy tax evaders in poor countries. The IMF says a typical developing economy collects just 15 per cent of GDP in taxes, compared with the 40 per cent collected by a typical advanced economy. In the WB’s ease of paying taxes 2017, Nigeria was in the 182nd position out of 190 countries; South Africa made No. 51 out of 190 in the same category.

Additionally, Vice-President Yemi Osinbajo stated that only 943 Nigerians paid N10 million or more in personal income tax (including 214 who paid N20 million or more). This is revealing. It is a misnomer in modern economic milieu, where tax is the mainstay of public revenues. Government records show that Nigeria’s tax income in 2016 was N6 trillion. In comparison, about 950,000 people paid such amounts in taxes in South Africa, which has a far lower population than Nigeria’s, grossing N27 trillion with just a workforce of 21.8 million.

Bode Agusto, a former director-general of the Budget Office, says that 200,000 wealthy people were the worst tax evaders in Nigeria. He argued that if these tax dodgers paid, the Federal Inland Revenue Service would gross a whopping N14.4 trillion annually and Nigeria would attain the 15 per cent tax-to-GDP benchmark. For Charles Soludo, a former CBN Governor, Nigeria could rake in N30 trillion by plugging leakages annually.

The tax system relies on voluntary compliance. The bad news is that the overwhelming majority of wealthy Nigerians are dishonest and unpatriotic. Policymakers should review the process of paying taxes, making taxation simple through digitisation and elimination of multiple payments a top priority.

Nevertheless, VAIDS performed poorly but was not a total failure; it was able to increase the number of taxpayers in the tax net to 19 million by 2018. It generated an extra N70 billion to government coffers, far less than the N305 billion it targeted. Curiously, since the initial and the extended amnesty period ended, the public is still waiting for the prosecution of the defaulters.

All this ensures that Nigeria’s tax-to-GDP ratio is one of the lowest in Africa. At 5.7 per cent tax to GDP in 2017, a compilation of the Organisation for Economic Co-operation and Development concluded that Nigeria was bottom of the pile among 26 countries it rated in Africa. It was behind Madagascar at 11.9, Ghana at 14.1 and Mali at 16.1.

From this, it is easy to determine where Nigeria’s economic distress lies. The VOARS should not end up like VAIDS. The Buhari regime should stop all platitudes, eliminate exemptions and go tough on the wealthy. The starting point is to name and shame tax evaders, but this is not enough. After the expiration of the new amnesty window, the regime should withdraw the licences of the defaulting entities to enforce compliance. For defaulting individuals, their national honours could be withdrawn and the electoral law barring them from holding public office and contesting elections should be enforced. Unrigging the economy will require enforcing the tax law. Going forward, tax evaders and their accomplices must be brought to justice.

Nigeria can draw lessons from what worked in other countries. The most important is political commitment at the highest level of government. The leakage will continue until the system throws up a truly visionary president.

Punch Editorial Board

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