A legal expert, Tochukwu Onyiuke, examines the Voluntary Offshore Assets Regularisation Scheme and how to bring it in line with extant tax laws.
On October 8, 2018, President Muhammadu Buhari, via his verified Twitter handle, announced the introduction of the Voluntary Offshore Assets Regularisation Scheme (VOARS) through the Presidential Executive Order 8.
The Federal Government’s continuous drive to boost non-oil revenue largely motivated the launch of this tax amnesty scheme.
Taxpayers who have defaulted in the payment of their taxes for a period of years are encouraged to embrace this scheme and voluntarily declare all offshore assets and foreign-sourced income relating to the preceding 30 years of assessments and pay a onetime levy of 35 per cent on all offshore assets in lieu of payment of outstanding taxes, amongst other benefits.
A benefit is that there is a permanent waiver of criminal prosecution for those who have been in default. Also, there is immunity from tax audit of the declared and regularised assets.
This scheme had a life span of 12 months and is targeted at all persons, entities and their intermediaries, who are holding offshore assets and are in default of their tax liabilities in any way whatsoever.
In June 2019, an Executive Order amending the Executive Order 008 of 2018 on the Voluntary Offshore Assets Regularisation Scheme (VOARS) was issued.
The Amendment Order is officially known as the Voluntary Offshore Assets Regularisation Scheme Amendments 2019 (the Amendment Order).
This sought to further elongate the lifespan of the 2018 VOARS and added some further provisions including prescribing punishments for domestic or foreign banks, asset managers or intermediaries that cooperate with defaulters and enable them to conceal offshore assets and income.
These financial institutions that aid and abet tax defaulters shall be liable to pay to Federal Government a penalty on the total of such offshore assets, in addition to other penalties provided for under Nigerian laws or laws of foreign countries from which Nigeria can benefit. The amendment is however silent on the longevity of the scheme.
Further to the above, the Order does not specify the taxes covered under Scheme, and it generally refers to tax defaults under relevant statutes in its recital.
Therefore, it is assumed that VOARS covers all tax defaults under Nigerian tax laws including Personal Income Tax (PIT), Companies Income Tax (CIT), Capital Gains Tax (CGT) etc.
Having enunciated the intention and purpose of the Voluntary Offshore Assets Regularisation Scheme, this article is set on looking at the various angles of the scheme and how it would fare side by side with different positions of our extant tax laws; including the legality and general perception.
Many stakeholders have described the methodology of this Order as unsystematic and a haphazard measure to achieving the intending aim. The VOARS Order has generated varied opinions as different camps are unclear about the modality of its operation and whether it is of any advantage to the average taxpayer in and outside the country.
The Order in defining offshore assets (tax base), includes liquid assets (bank balances), stocks and bonds held in portfolios, insurance policies, shares in listed or unlisted offshore companies, property assets and all manners of assets held directly or indirectly through corporate entities, trust structure and non-Nigerian resident companies and intermediaries.
Having it at the forefront of our minds that various laws of our land have explicitly specified and clearly defined who and when to pay taxes, the VOARS has set up something unprecedented.
Looking at the stands of our extant laws, the Personal Income Tax Act for instance in Section 1 provides for the imposition of taxes in Nigeria. Section 2 of the Act states the categories of persons on whom income tax is to be imposed upon to include individuals, communities, families and trustees.
A careful look at the provisions of Section 11 of the Act which bothers on Tax credit allowable against tax payable on income derived from outside Nigeria will reveal that where a resident derives income from a foreign source outside Nigeria and the income is brought into Nigeria through Government approved channels, he shall be allowed a tax credit against tax payable by him.
The focus of the draftsman in the afore-cited section as regards foreign-sourced income is strictly upon foreign income earners that are bringing their foreign earnings into Nigeria through the right channels. There is no provision for taxing foreign-sourced or offshore assets that are abroad and have no intention to be brought back into the country.
What this means is that the modalities of VOARS is susceptible as it has no legal backing from the extant laws. The provision of Section 13 of the Personal Income Tax Act 2011 gives further clarity to this assertion.
Foreign-sourced incomes are not liable to Personal Income Tax in Nigeria unless and until they are brought into or received in Nigeria.
In essence, it is not illegal for Nigerian-resident individuals to earn legitimate foreign incomes or elect to retain such incomes abroad.
A similar scheme termed the Voluntary Assets and Income Declaration Scheme (VAIDS) was previously embarked upon and concluded in 2017.
The VAIDS was applauded by various stakeholders, including taxpayers and tax authorities because it focused mainly on the declaration of assets in the country, the recently introduced Voluntary Offshore Assets Regularisation Scheme (VOARS) has not received similar accolades and have been met with unfavourable reviews from experts and stakeholders alike.
The Order provides that the people targeted in the Scheme includes “all persons, entities and their intermediaries, who are holding offshore assets and are in default of their tax liabilities in any way whatsoever”, including persons who:
- are not already under investigation by law enforcement agencies for theft of public funds or obtaining offshore assets through corrupt practices;
- own offshore assets but are yet to declare them with the relevant authorities;
- earn income on offshore assets but are yet to declare such income to relevant tax authorities;
- are registered taxpayers but have not been filing returns or have additional disclosures to make;
- have been underpaying or under remitting tax;
- are under a process of tax audit, investigation or dispute and are prepared to settle out of court;
- have applied for and received a Special Clearance from the Federal Government to participate in the Scheme;
- have been determined to be innocent after investigations or legal proceedings.
Flowing from the above-stated position of the Order, it further states that the declaration of the offshore assets to be in respect of all assets and income amassed within the past 30 years.
Several eyebrows are raised regarding the availability and accessibility of general information and data required by the VOARS for full efficiency.
By way of an instance, challenges may arise in accessing account balances for the past 30 years given that the guidelines for Deposit Money Banks in Nigeria require banks to retain their transaction records for a maximum period of 5 years save for special instances.
Similarly, some other foreign climes like Switzerland have a limitation period of 10 years to retain bank records for individuals.
Thus, a taxpayer may be faced with a shortage of information on their offshore assets should he eventually volunteer to participate in the tax amnesty scheme.
In addition to the aforementioned facts, the PIT Act and the CIT Act state that a taxable person is to be taxed based on his/her income received inside or outside Nigeria, it is enlightening to note that both Acts expressly exempt income derived from dividend, interest, rent and royalties, brought into Nigeria through government-approved channels, from payment of tax.
Though VOARS identified income earned from the stock market abroad as one that is subject to tax, the provisions of the PIT Act exempt such incomes earned from the stock market.
To further add to the point, an executive order cannot cure a perceived lacuna of an extant law in view of the PIT Act. If there is a need to capture the targeted persons of interest as stated by the VOARS, an amendment to the P.I.T.A should be considered should an amendment be thought necessary.
Specifically, the PIT Act goes further to exempt fees and commission, received by a taxable person abroad, from tax, provided such fees and commission are brought into Nigeria through government-approved channels. Section 13 of the P.I.T.A was emphatic on this position.
It is the position of the writer that money earned on the stock market offshore and not declared under VOARS cannot form the basis of criminal prosecution because it is not a crime in any of the extant laws.
The Voluntary Offshore Assets Regularisation Scheme works closely with the Nigeria Financial Intelligence Unit (NFIU) which has worldwide access to relevant financial information, to ensure seamless exchange of information.
The Nigerian Financial Intelligence Unit is the Central National Agency, being an autonomous unit that is responsible for the receipt of disclosures from different reporting organisations on any financial discrepancies.
The analysis of this disclosure and the production of intelligence are disseminated to competent authorities for further investigation.
The NFIU however lacks the degree of popularity it ought to have on the national front to work with VOARS, it cannot also boast of the availability of data on persons with offshore assets and income.
Also, by way of addition, there are several levels of protection offered by the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act as regards non-disclosure of sources of imported foreign currency.
Section 3 (1) of the Act states: Except as required under any enactment or law, a person executing a transaction in the Market shall not be required and, if required, shall not be obliged, to disclose the source of any foreign currency to be sold in the market.
(2) No foreign currency imported pursuant to this Act shall be liable to seizure or forfeiture or to suffer any form of expropriation by the Federal or a State Government except as provided under this Act.
While VOARS has mandated individuals to disclose monies earned abroad for the purposes of paying tax, the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act places no obligation to disclose. All these without a doubt reinforce the inconsistency of VOARS in view of the provisions of the extant tax laws.
The writer understands that the Federal Government’s rudimentary aim in commencing the VOARS is to promote voluntary tax compliance, expand Nigeria’s tax base, boost government revenue, cut tax evasion, corruption, halt illegal financial network, and imbibe the norms of national responsibility, accountability, and honesty in citizens.
It has to be in line with the extant tax laws to clothe it with the needed validity capable of being enforced in the event of default.
- Onyiuke is a Partner in Accendolaw Law Firm, Lagos.
