Negative implication of tax holiday on Nigeria’s economy

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By Olabode Jegede

There are various investment incentives provided under the relevant laws and regulation, which include tax holidays; tax credits; capital allowances; investment allowances; tax exemptions; duty drawback; subsidies; export expansion grants; export development funds; double taxation reliefs; and investment promotion and protection agreements, among others.

For instance, a research carried out by Action Aid revealed that Nigeria lost $3.3billion or N2 trillion of tax revenue to oil giants, specifically, Shell, Total and ENI through a series of extraordinary tax breaks.

The report stated that the companies enjoyed the tax breaks from 1999-2012, which exempted them from corporate tax payments.

It is, however, worthy of note that the British-Dutch company Shell was the greatest beneficiary after being exempted from paying $1.66 billion?-?equivalent to more than the entire Nigerian annual health budget, while French company, Total was exempted from paying $977million and Italian company Eni enjoyed such relief of $677 million.

In contrast, Nigeria’s Small and Medium Enterprises SMEs which according to the National Bureau of Statistics (NBS) are about 41 million have been bearing the brunt of multiple taxation which has crippled millions of businesses and left many in a coma.

The SMEs are believed to be the highest employer of labour in Nigeria, but most of the small businesses are short down almost on a daily basis, due to multiple taxations while many big foreign companies are granted tax amnesties, where they end up not employing many citizens as a workforce.

Reacting to the degree which tax incentives are hurting the country’s revenue generation drive, the Minister of Finance, Budget and National Planning, Zainab Ahmed said the federal government is considering reviewing pioneer status granting companies operating in Nigeria.

She admitted the fiscal challenges facing the country especially in the area of revenue generation as well as job creation.

She said the federal government is setting up a mechanism to ensure that any foreign company coming into the country to invest must show a blueprint of how many jobs investment will create for Nigerians.

According to her, “Every Minister has been given priority programmes to implement and it requires each requires that for each project both locally and foreign investments, there must be a clear explanation of how many jobs it will generate for Nigerians as tax incentives must be profitable for the country.”

Although, she maintained that tax incentives are often given to foreign companies as a way of encouragement and also to attract Foreign Direct Investment (FDIs) into the country.

The federal government has projected a total revenue target of N7.634 trillion in the 2020 budget of which tax revenue is targeted at about N436 billion.

However, the Chairman of the Federal Inland Revenue (FIRS), Mr. Babatunde Fowler had said that the Service has automated its machines for efficiency and also to ease tax payment.

The FIRS boss noted that a total of 23,141 defaulters owe N254 billion in tax liabilities.

However, he noted that the Service is collaborating with commercial banks to ensure the recovery of defaulted taxes.

“FIRS in collaboration with the banks have started engaging in compliance measures with regard to the tax defaulters and their accounts,” he said.

“Failure to carry out this directive will result in the banks being sanctioned according to Section 31 subsection 1-3 and 32 respectively of the FIRS Act 2007.”

Fowler said out of 44,293 non-compliant companies, 3,976 already paid about N97.7 billion. He said the agency recovered N88.59 billion after reaching an agreement with 3,797 out of 42,736 companies.

Commenting on this development, an economist and the Chief Executive Officer of Global Analytics Consulting Ltd, Tope Fasua said there is no sincerity is tax waivers as it is basically driven by politics.

“The issue of tax waivers is a big shame that we still have political tax waivers. Waivers are not as a result of political finance as people show up to get waivers. Therefore, we should just scrap,” he said

Fasua said, tax incentives for foreigners are obnoxious because of the small businesses in Nigeria countries need it more, as Nigerian companies are involved in several businesses.

He said instead of concentrating in giving tax incentives to foreign companies, it should be channeled to Nigerian owned enterprises.

“The total reliance on foreign investors is what got us into the $9billion P&ID contract mess. The idea we can’t do anything on our own is the problem.

“Also, the fact that we give concessions in the case of even Etisalat for instance, by the time they were leaving, they had a debt of about N510billion with our local banks, of which the  Central Bank had to come to the rescue or these banks and bail them out. So where are the foreign investors?

“We don’t get any investment, just debt that will pressure our local system, so I don’t agree with those waivers,” he added

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