Economics experts say that the tax-to-GDP ratio in Nigeria is currently a little over 6%. A very small ration when you consider the fact that the West African nation has an estimated population of 69.9 million people who are active economically. These statistics were established back in May 2017.
In a nutshell, there are a lot of tax evaders in Nigeria. So many in fact that if the Federal Government decided to carry out a crackdown, the economy might come to a standstill. But that is not to say the government will not come after tax evaders. No, rather it will come softly after them but firmly at the same time.
In July 2017, the Federal Inland Revenue Service (FIRS) launched the Voluntary Asset and Income Declaration Scheme (VAIDS). A year-long program that will give tax evaders an amnesty to come forward to the taxman and come up with a schedule for payment of due taxes. During that period, there will be no criminal proceeding towards the tax evaders, provided they truthfully declare all their assets and sources of income.
Well, the VAIDS period ends at the end of this week, March 31st, 2018. That means past that day, the only conversation the Nigerian taxman will be having with any tax evaders will be through the courts and law enforcement authorities.
While VAIDS was meant to increase the federal government access to more revenue to drive the affairs of the country, it would also build Nigeria’s tax database.
How does VAIDS affect startups in Nigeria?
The Nigerian law is very clear on the tax obligations of any businesses; a business must file their tax returns not later than 18 months since they began operating. If the business has not been generating any revenue, then there is a form of a statement of affairs such businesses should fill out to let the taxman know, and then they will be issued with a tax clearance certificate.
The taxman argues that the tax registration process has been simplified, so much so that there is no reason for anyone or business to give an excuse for failing to file their returns (NIL or otherwise).
So come March 31st (next Saturday) FIRS will begin criminal prosecution of tax evaders across Nigeria. Any person or business found culpable of evading tax will be sanctioned. Tunde Fowler, the FIRS chairman, assures the country that the taxman has been allocated budget to fund the legal proceeding against businesses found not to have complied.
It is interesting to note that a while ago, FIRS was running a campaign encouraging businesses to take the opportunity of VAIDS and some five lucky businesses will be chosen and awarded N100,000 for their compliance. This campaign and the cash prize award was meant to encourage compliance.
There is a debate on the effectiveness of the campaign, as it did not address some of the fundamental reasons why businesses to file their returns. Such as ignorance and the associated costs.
Munachi Alfa, the Principal Consultant of Masal Consultants, says startups ought to know that tax is unavoidable. It is also crucial if a startup is looking to scaling up and getting investors onboard. For instance, when a startup is looking to raise money from international investors, one of the prerequisite document to begin the process is the Tax Clearance Certificate (TCG) from FIRS.
As you know, the Nigeria startups scene is getting a lot of attention from around the globe. For startups to ride this wave, then they need the TCG from FIRS before diving into the water. Then again, how for how long can any startup hide from FIRS? All they need is your Bank Verification Number (BVN) to trace all your income and see you have not complied with your tax obligations.
Unless, of course, you are operating in the deep dark web using cryptocurrencies on anonymous platforms. The problem with cryptos is that they are (at least not yet) accepted everywhere, so the minute you convert them to fiat currencies, FIRS can begin smelling your evasion from there.
Take advantage of VAIDS
You have exactly a week from today to take advantage of VAIDS before it’s too late and the taxman comes for your neck. You can do the entire tax compliance online, though some Nigerians are complaining of the portal being quite seamless.
Alternatively, you can visit the nearest taxman offices to your location and go to the VAIDS desk. You can opt for the self-assessment of your tax liability or get assistance from a tax authority agent. There are also professional tax consultants who for a fee, can help you with the declaration.