In order to fasten development, attract investments and create jobs, the President Muhammadu Buhari-led administration reveals its intention to introduce more tax incentives to Nigerians.
The incentives are, however, contained in the proposed Finance Bill 2020 which, if passed by the National Assembly, would become workable.
Revealing the introduction of the new incentives through a statement it issued, the Presidency said the incentives were offered by government in its determination to cushion the socio-economic condition in the country even as the Economic Sustainability Plan (ESP) is in progress.
According to the statement, the highlights of the proposed bill include: Reduction in duties on tractors from 35 to 10 per cent; Reduction in duties on motor vehicles for the transportation of goods from 35 to 10 per cent; Reduction of levy on motor vehicles for the transportation of persons (cars) from 35 per cent to 5 per cent.; Exemption of small companies from payment of education tax under the Tertiary Education Trust fund (TETFUND)-companies with less than N25m turnover are eligible; 50 per cent reduction in minimum tax; from 0.5 per cent to 0.25 per cent for gross turnover for financial years ending between January 1st, 2020 and December 31st, 2021; and granting of tax relief to companies that donated to the COVID-19 relief fund under the private sector coalition (CACOVID).
The administration said granting tax relief to companies that donated to the COVID-19 relief fund shows government’s appreciation for their contributions and, at the same time, encourages others to do same in times of need.
Essentially, the government said its proposed plan for the proposed Finance Bill 2020 has as its underpin making incremental changes to tax, customs, excise, fiscal and other laws to support the 2021 Budget.
Still, it should be understood, while the significance of granting incentives to businesses cannot be overemphasised, governments, the Buhari-led government in Nigeria inclusive, essentially fund their programmes in two ways. They can use the straightforward method of taxing and spending-money comes in and money goes out.
Or they can use tax expenditures. These are tax credits, exemptions or rate reductions which give direct benefits to a subset of taxpayers – often as an incentive to take a particular action – encouraging companies to invest, develop infrastructure or set up in disadvantaged regions, or individuals to save for retirement, for example.
There are arguments for and against spending through the tax system. On one hand, tax incentives are relatively easy to implement, they don’t require an outlay of cash and they make use of information that revenue agencies have already collected.
But, on the other, loading the tax system with too many policy objectives conflicts with the drive for a coherent, simple and transparent tax system. Tax expenditures are harder to assess than on-budget spending and are prone to special interest lobbying and corruption, and vulnerable to abuse.
Despite decades of advice from international organisations to curtail tax incentives, they remain a popular tool for governments.
Of course, an economic case can be made for tax incentives as they offer a means for governments to reduce the cost of capital for high risk new industries, and for mobile capital while maintaining higher rates for general tax collection and location-specific rents.
In fact, for countries with large informal sectors and tax evasion pressures, like Nigeria, tax incentives can be a means of enhancing productivity and economic growth by preventing firms from shifting into the informal sector or evasion-prone activities.
There is no doubt that investment incentives have contributed to the rapid economic growth of countries such as the Republic of Korea, Malaysia, Mauritius, Ireland, Taiwan, and Singapore.
However, if incentives are overgenerous or poorly designed, they can result in giving money away without affecting investment and operating decisions.
Even worse, incentives, especially in corruption-prone countries like Nigeria, can be captured by politically-connected firms and individuals and used as a merry-go-round for diverting public funds to finance political activities.
And they can incentivise perverse results, such as stretching out investment over time to extend the tax holiday.
Nigeria, like so many developing countries, has been granting a number of tax incentives to multinational companies in a bid to attract foreign direct investment. Proponents of the incentives argue that the measures are vital to the development of the economy, while critics point to the glaring lack of evidence supporting these claims.
Yet, the question remains: are tax incentives serving the people or a few individuals? Studies suggest that tax incentives are generally considered to be the least important factors in making investment decisions in low-income countries, because the investments would have happened with or without them.
Despite all the evidence and arguments on the ineffectiveness of tax incentives, the Nigerian government thinks otherwise and, periodically, expands the list of beneficiaries.
So, on the one hand, while Nigerians have been inundated with talks about how the government intends to broaden the tax base and reduce its reliance on oil revenue and make taxation the source of development, the government, on the other hand, is signing away its tax revenues without any evidence that suggests that a careful cost-benefit analysis has been carried out to ascertain if the tax incentives are going to be beneficial or not.
Perhaps another thing that complicates the issue of tax incentives in Nigeria is the fact that so many agencies are involved in its administration, which leads to the duplication of duties and lack of coordination that opens up avenues for abuse and corruption.
Thus, even if the said incentives were confirmed to be beneficial, it remains unclear if the existing complicated framework will be efficient and effective in implementation.
Another concern is that this and previous government have never made transparent the cost of the incentives they granted. Seemingly, the reasons for failing to do that could be attributable to the complex nature of the tax incentives framework.
However, it is critical that Nigeria re-evaluates its tax incentives framework. Otherwise, for every tax the government gives away, it may be giving away healthcare, security, good roads and improved welfare for the citizens due to likely selfish manipulation of the system, and corruption that could be perpetrated by some government officials.
It is vital that the government carries out a thorough cost-benefit analysis on tax incentives and make transparent the opportunity cost of these incentives such that it will be clear if the incentives are serving the people or a few individuals.
Thankfully, the Finance Act 2019, which is the template for the proposed 2020 Finance Bill, sets five strategic objectives among which is the need to reform domestic tax laws to align with global best practice and promoting fiscal equity by mitigating instances of regressive taxation.
Youth need opportunities
Bubbling with abundant natural resources and a young, dynamic population, Nigeria has played and continues to play an important role on the continent and it has the potential to be a bigger global player in the future.
Thus, President Muhammadu Buhari, speaking in Abuja, during a ceremony to receive the Letters of Credence of the Ambassadors of Belgium, Mauritania, Austria and Norway at the Presidential Villa, urged the international community and investors to take advantage of the country’s diversity in human and natural resources for investment.
He said, and rightly too, that youth development, inclusiveness, integration and employment remain priority for his administration.
“Nigeria is an ethnic and culturally diverse society with various opportunities which we seek to creatively utilise for the benefit of our people,” he said. “We are also a country with a huge population which is predominantly youthful.”
While pointing out that the above stated peculiarities pose challenges of their own as far as the country’s development is concerned, the president said Nigeria intends to leverage on the advantages they offer for its youth development.
After all, youth development is an ongoing growth process through which the country helps its youth meet their basic personal and social needs to be safe, feel cared for, be valued, be useful, be spiritually grounded and to build skills and competencies which allow them to function and contribute their quota to nation-building and development.
Expectedly, Nigeria has been trying to resolve youth problems, which are many and complex, including academic failure, drug use, teen pregnancy, juvenile crime and lack of ready workforce.
The efforts of the governments in Nigeria have often been mixed up and resulted in poor results. Youth problems are caused by underlying issues that are widespread and chronic such as persistent poverty, parents’ lack of family management skills, lack of supports and opportunities and lack of clear standards of how things should be done in the country.
As a result, many youth experience difficulties in life, have poor navigation and decision-making skills, lack of a sense of purpose and lack of requisite skills or access to effect change.
There is little or no doubt that Nigeria’s youth, largely for no fault of theirs, lack the awareness and skills needed to ensure their success socially, economically and politically. Tellingly, low voter turnout during elections and low volunteer rates are signs that youth do not understand their civic obligations.
Youth, if they must be made useful members of society, should be prepared appropriately so they can respond to the challenges and opportunities that confront them.
Nigeria’s population is around 202 million. About 66 million of these are young people between the ages of 15 and 30. Therefore, the governments should empower youth and put in place structures to encourage and fund individuals or institutions that empower young people.
There should be free education and easier access to funds for youth, workers and non-profit organisations working with young people, all with the view to developing the country and its people.