Tax waivers: Manufacturers not playing by the rules

Tax waivers are incentives provided by government to aid industrialization process and fasten the growth of the economy. It comes under various categories but for long, manufacturing concerns have been working around it in contravention of business best practices, a situation that has warranted probe by the Nigerian lawmakers. How can it be handled to avoid conflict of interest? AJOSE SEHINDEMI reports.

Nigeria’s government believed that granting of tax waivers to industries will allow them to compete favourably as it is part of creating an enabling environment for business to thrive.

For long, tax waivers, holidays, exemptions, have been granted under different disguises by successive governments in Nigeria, sometimes under controversial circumstances.

One avenue of such is the pioneer status granted by the government through the Nigerian Investment Promotion Council (NIPC).

It was meant for industries that ventured to invest in industries that were either non-existent at all, or in which the country did not have sufficient presence for its economic development, though not exclusively meant only for new industries or entrants to the economy.

The granting of pioneer status to a company was also aimed at enabling such a company operating within the pioneer industry to make significant capital expenditure and a reasonable level of return of profit within its formative years, without having to pay tax.

On the face of it, it appears to be noble, helping companies through their formative early years in what often is a difficult period. But that is where the story stops.

It has now been learnt that this was highly abused as at several instances, the NIPC granted the pioneer status retrospectively, thereby causing the government to even refund taxes already paid by the companies, which has cost the government about N1.850 trillion in revenues.

NIPC also issued pioneer status certificates to companies other than those envisaged by the law, including petroleum and production companies. It allegedly also granted companies for five straight years, contrary to extant laws; and is also alleged to have granted unwholesome extensions and even further granted the status to companies that previously benefited from the grant.

This abuse, according to the Nigeria Extractive Industries Transparency Initiative (NEITI), made the government to lose over N475.8 billion to the granting of tax waivers under the pioneer status scheme to oil and gas companies in the upstream sector, between 2009 and 2016, and when broken down, government lost $1.17 billion between 2009 and 2014; and between 2014 and 2016, the figure grew to $1.56 billion.

Globally, tax waivers and incentives are used to balance the economy, protect vulnerable local industries, control importation and stimulate growth.

In Nigeria, however, the reverse is the case as they are given to cronies, political associates, connected companies and individuals under dubious circumstances which, instead of assuaging the economic situation, destroy the little benefits being noticed in the economy.

This situation has led some organisations, both local and foreign to call on government to look into the issue and adopt measures that would see it phase out tax holidays and exemptions that are eroding the company income tax base.

The connivance of Nigerian officials who aid and abet the unwholesome practices by companies to dupe the government through the initiatives cut across local and multinationals who have familiarised themselves with the Nigerian system of doing business and have been profiting from it against the obvious benefit to the economy, as a while ago, Action Aid Nigeria (AAN) and Tax Justice Network (TJN) released a report stating that the country lost about $2.9 billion on tax waivers to mostly multinational companies.

This has raised uproars from Nigerian lawmakers who are bent on seeing that the situation improves and does not continue to put a hole in the coffers of the government, that regularly complains of insufficient revenue due to the non diversification of the economy and falling oil prices.

Recently, the House of Representatives Ad hoc committee which investigated the waiver given to certain companies on sugar importation, revealed that the government lost a total of N400 billion illegally spent on importation of raw sugar from 2013 to 2016 by some sugar companies.

Abiodun Olasupo, the chairman of the ad hoc committee investigating the waiver, denounced the huge importation of raw sugar in spite of the waivers meant to enhance local production and ensure that 80 per cent of materials were sourced locally by end of 2018.

According to him, these sugar firms, rather than concentrating their investments towards the development of attaining sugar sufficiency in the country, opted for more importation to the detriment of local production target. “This is paid in dollars, encouraging the outflow of our hard earned foreign exchange.

From the record at our disposal now, the three companies licensed to import raw sugar are in deficit of about N322 billion as waivers with nothing on ground.

The effect of the waiver is to have 70 percent production of sugar locally,” he asserted. Lamenting the negative impacts of the situation on the economy, he affirmed that boosting local production would create jobs and conserve foreign exchange while he also decried a situation where Nigeria had not achieved 10 percent of the requirements in sugarcane production.

Tobacco companies are alleged to be among major beneficiaries of the Export Expansion Grant (EEG), another tax avoidance scheme, in violation of the conditions for accessing the EEG.

Environmental Rights Action (ERA) accused the tobacco companies of abuse under the scheme and while it supported the plan to increase excise duty on cigarettes from June, it wants government to go further by recouping all previously unpaid taxes, tax waivers and tax grants that tobacco companies have illegally benefited under previous governments.

Akinbode Oluwafemi, ERA representative in a note sent to business a.m. said: “Tobacco companies are listed among beneficiaries of the EEG even though tobacco is a known lethal product and they are known to use economic analyses to persuade policymakers to adopt policy measures that will encourage tobacco consumption in the country.

“For all their claim of contributing to the Nigerian economy in terms of revenue, Nigerians do not know the volume of raw tobacco leaf imported into Nigeria and from which country or the volume of shredded tobacco imported into Nigeria and from which country and Nigerians need to know exactly how much tobacco companies benefited from our own national wealth,” he said.

While the lawmakers believed that their action is justified, some members of the organized private sector believe otherwise as they alleged that it was a ploy to interfere in their business operations.

They said government incentives are a welcome development as it will allow for more innovation through a functioning research department due to the availability of funds saved from the waivers granted them by the government.

They said though abuse might crop up in the form of unethical business practices by some of its members, but that this does not justify the generalization of companies benefiting under the schemes as unworthy. They said instead of different probes, it behoves on regulatory agencies to be up and doing in their responsibilities. Lagos Chamber of Commerce and Industry (LCCI) said regulatory agencies should be strengthened by the government to improve on their tasks as that remains the only way abuses can be checked.

Government said it changed the focus of the pioneer status when it reintroduced it, after it suspended the scheme a while ago due to complaints it received.

It said it has now aligned it with its interest – to grow the economy – which is already bearing fruits noticeable by all. The concern of some analysts is whether it will not affect the foreign direct investment drive of government if the arms of government – presidency and legislature – are seen to be flexing their muscles on the issue as more industries are needed to reduce the huge unemployment gap in the country under a conducive business climate with just laws and tax systems.