Reminiscing my days in school, the scene of an interesting public finance class in my final year keeps popping up. It pointed out self interest (of politicians and bureaucrats) as the justification for hike in public expenditure according to Buchanan’s Public Choice Theory. For the very first time, an exposé by a lecturer attracted so much attention that rounds of applauds accompanied. This inspired this write-up concerning VAIDS please enjoy.
It’s no news that the Nigerian economy which has been pampered by black gold (oil) for several years suffered a set-back in 2014. Prior to 2014, the tiers of government had been so carried away by juicy oil revenues that it soon forgot to monitor the tax compliance of citizens.
However, the downswing of both price and quantity due to international (US shale) and domestic (pipeline attack) reasons respectively culminated in a recession and called for alternative sources of revenue. Although, the government initially resorted to blocking leakages for corruption through the consolidation of public revenues into a Treasury Single Account as well as the establishment of a whistle-blowing unit, yet like Oliver Twist, the eyes of the Federal Government were still red for more cash.
In the midst of the recession, the government retraced its steps by reviewing its adherence to the Keynesian prescription for public revenue – “Taxes” as opposed to oil price benchmarks that has been relied on as the chief source of revenue. However, this time the government simply advises the defaulters to confess their sins in full and receive forgiveness on certain conditions. Thus. average tax evader finds himself in what is christened “The Prisoner’s Dilemma”.
The Prisoner’s Dilemma theory is a concept in game theory used to analyse the rational behaviours of two alleged thieves with no established evidence to prosecute them. They are locked up in different cells and enticed to confess in order to lessen their jail terms. If one confesses and the other declines to, the jail term of the former is reduced while the latter faces a longer jail term and vice-versa. However, if both confess, they would serve an equal jail term. If neither of them confesses, they would suffer a shorter jail term. Obviously, silence appears to be the best option, but their captors have an unfair advantage – since they are not interrogated in the same place, the other could be lured to betray his ally. In other words, each prisoner pre-empts that his co-prisoner will act in self interest in order to reduce his sentence by confessing. Eventually, both confess and serve an equal jail term. Therefore, such a situation where individual choose an unfavourable outcome over the best outcome due to information asymmetry is what is commonly referred to as the Prisoner’s Dilemma.
Lets take a look into preparatory investigations for the case at hand;
According to statistical records, Nigeria has a 6% tax-to GDP ratio compared to 26.2% in South Africa, however there’s more to this information than meets the eye, below are some mouth-watering findings–
Out of 14 million registered labour force, 96% are captured through the PAYE tax system while only 4% (or 560,000) file returns through direct assessment as self-employed and high net-worth individuals.
Only 943 people pay N10m or more in personal income tax (including 214 who paid N20 million or more)
941 of them reside in Lagos and 2 in Ogun state. This implies that there is no billionaire or multi-millionaire in other states and the FCT. This is a pointer to gross evasion or under payment of taxes by high net worth individuals.
In response to this, the Federal Government has astutely devised a fair hit below the belt in fishing out looted funds from their captors by capitalising on the betrayal of accomplices or acquaintances. You know well what I’m talking about – Whistleblowing. In fact, unlike the conventional game theory, one of the prisoners wilfully presents himself to the authorities, admitting he has information about public monies that cannot be seen by banking revolutionary technologies (like BVN). Like the biblical Joseph who was dumped in a pit but was later needed to solve the then global famine, public funds kept hostage in apartments and graves happened to be a source of replenishment to the depleting national treasury.
In order to solve the massive evasion plague, the government embraced a successful fiscal policy that has been tested in over 40 countries in past years. On the 29th of June, 2017, VAIDS was born.
Short for Voluntary Assets Income Declaration Scheme, VAIDS is an initiative designed to encourage voluntary disclosure of previously undisclosed assets and income for the purpose of payment of all outstanding tax liabilities. Defaulters are obliged to make full and honest disclosure in return for some incentives – waiver of interest and penalty, immunity from prosecution, confidentiality of information supplied, exemption from tax audits for the periods covered by the disclosure and flexible payment of tax due.
On the flip side, non-compliant evaders are to pay interest and penalties in addition to full payment of tax liabilities. In addition, they will undergo comprehensive tax audits, face prosecution and risk having their names published in the “name of shame” list. When a similar list was released in Greece, 4000 people were named including a famous basket ball player and musician. This happens to be a strong emotional downplay on tax defaulters as the anticipated damage of personal image from such an occurrence could be irrecoverable.
Initially, tax evaders were given 9 months to reconcile their tax records and take advantage of the programme. However, the deadline was recently extended to 30th of June, 2018 as various professional bodies, institutions and individuals have constantly bombarded the hotlines so as to reconcile their tax positions few days to the eve of the new deadline that clashed with a festive period.
Interestingly, another dilemma comes up in the mind of the average evader. How will the government dig up the dirt? What if I am not captured in the exercise? Could there be enough information available to the tax authorities?
A sneak into the tax man’s files reveals desperate measures in tracking down non-compliant evaders including reviewing BVN records, forex allocation returns and Bureau de Change records, ownership of prime properties, land ownership records, private jet ownership records, whistle-blower tips amongst other data sources.
Skimming through the information on the official website, I was taken aback by the depth of investigations carried by the authorities in tracking down defaulting “entertainers”. In short, tax officials are going to take advantage of self-announced assets, tours and invitations so as to evaluate their tax compliance. No wonder, like the markets, entertainers have suddenly become discreet on display of personal assets for popularity gains.
On a more serious note, international sources have joined hands in helping in the dedicated search for evaders. For example, the Unexplained Wealth Order established by the United Kingdom (one of the countries with the best property markets in the world) enforces outright seizure and takeover of properties with unclear sources of funding. VAIDS provides an escape route to an UWO action provided the individual can provide evidence of tax payments regardless of when the property was purchased.
Given the attention of the authorities in this exercise and partnership with international forensic firms, the Central Bank, EFCC and various organisations, an average evader is left with no other option but to regularise his status in due time as the benefits outweigh the costs.
Compliance would make the government more accountable to the people. If people pay taxes duly, people would want to monitor their hard-earned contribution to the national treasury. This will increase non oil revenue, reduce debt burden, improve credit ratings, stabilise exchange rate, control inflation, encourage savings and investment as well as enhance the quality of lives.
With access to this information, I feel the uncertainties have been demystified and the puzzle solved. It’s a win-win situation for all and sundry. Hence, declare and keynesize our economy again.