Innovation is driving revenue collection globally in the face of slow growth rate in trade and investment. More and more tax administrators are coming up with diverse products to raise government revenues to meet daunting challenges. In Nigeria and much of the frontier markets voluntary tax compliance is still a mirage and special efforts needs to be employed to curb it.
Whereas in developed nations taxpayers remit voluntarily, allowing the tax administrators time and space to develop new tax types such as carbon tax, green gas tax amongst others, but one innovation that stands out from this pack, even in developed countries, remains Tax Amnesty. In Nigeria, amnesty as become a cliché, so to speak in view of the conflicts in the Niger Delta and the North East.
Amnesty as we know, is a legal forgiveness from certain infractions. Tax Amnesty is defined as a waiver or reduction and sometimes removal of penalties in back taxes to encourage defaulting taxpayers to pay what they owe within a specified window. Indeed like on criminal matters, majority of eligible taxpayers in Nigeria rarely remit their taxes and it is crucial we find a common ground to achieve the objective of the government to raise funds from taxes through some ingenious means that works with our cultural and economic landscape. The objective of tax amnesty is to forgive or negotiate the tax liabilities of individual and corporate tax payers in line with laid down statutes. An amnesty must necessarily have a legal or legislative backing for it to take effect with a cut off date. Amnesty will not completely knock off the penalties for deliberate tax infractions, but will seek a possible relaxation of some of these penalties to encourage the expansion of the tax net, albeit temporary. And one key demand will be an agreement between the taxpayer and the tax administrator to file future returns on time in the future.
A major challenge which the Federal Inland Revenue Service (FIRS) and various State Boards of Internal Revenue (SBIR) contend with is the issue of mounting tax arrears. In some cases the companies have collapsed while the going concerns are not complying as and when due. While the tool of enforcement should not be replaced with amnesty completely, it is however a tool that can be deployed to increase revenue collection. Amnesty or some of form relief will certainly encourage defaulting taxpayers to negotiate their tax debt obligations with respective collecting agencies, which will then enable them to start on a clean slate. It implies that a taxpayer who has enjoyed the magnanimity of amnesty will not be qualified more than once and stiffer penalty can then apply to such a taxpayer in the future in the event of a default. It must also be taken into account that not all defaulting taxpayers do it deliberately. This may be due to inadequate education on when and how to file tax returns, even though the FIRS as made tremendous progress in this regard.
Australia, Belgium, Germany, Greece, Italy, Portugal, Russia and closer home South Africa are some countries that have designed tax amnesty programs and successfully implemented them. In 2003 via the Exchange Control Amnesty and Amendment of Taxation Laws Act, the South African Revenue Service (SARS) successfully implemented their first amnesty program. The second was the Voluntary Disclosure Programme (VDP) implemented to cover all taxes in 2011. In September 2010 the Greece parliament in compliance with the EU bailout plan, hurriedly sanctioned a tax amnesty program to raise between €2B- €3B from a backlog of unpaid taxes in the heat of the economic meltdown that hit them. It is vital to point out that it is not only local taxpayers that amnesty can be extended to, but it is even more important and attractive to repatriation of illegal offshore investments.
On June 26, 2012, IRS Commissioner, Doug Shulman said the IRS offshore voluntary disclosure programs has so far collected more than $5 billion in back taxes, interest and penalties from 33,000 voluntary disclosures under the first two amnesty programs implemented by the IRS.
It has not been all bliss for various tax amnesty programs. In December 2012, the Spanish Finance Minister, Cristabol Montoro declared that only €1.2B was raised against a projection of €2.5B. Meaning that amnesty in itself is not foolproof as a wholesome solution to compliance. But it does help to close the arrears gap.
Though some will argue that Amnesty effectively legitimises evasion, which might be reasonably correct on the surface of it, however in the case of Nigeria, that might not readily be so in the sense that the capacity to enforce or prosecute defaulters as contained in the 4th and 5th schedule and section 4 of the FIRS Establishment 2007 specify appropriate penalties for tax offenders. In February 2013, the Missouri State Parliament approved a tax amnesty program projected to raise as much as $75m to boost state revenue. Under the proposed law, taxpayers will get a waiver on back taxes interests and penalties if they pay past due obligations between August 1 and October 31 tied to compliance to state tax laws for another 8 years, failure of which waived interests and penalties would become debts again. And such participants would not be qualified for amnesty programs of such nature in the future.
Certainly tax amnesty programs help in clawing back needed funds to fund infrastructural development but has to be carefully designed with our unique environment in mind. The impact will be far reaching if the FIRS and SBIRSs working under the auspices of the Joint Tax Board (JTB) collaborate for this purpose. However executive and legislative approval will be vital to the success of any program of this nature that improves compliances levels among defaulting taxpayers. Let’s try tax amnesty for size.
Written By Frank Onero Obaro of FIRS