Recent media report to the effect that the federal government has foregone N16.76tn in revenue to tax reliefs and concessions given to large companies between 2019 and 2021, is a welcome development, with a proviso that the gesture will enhance local production.
As of the end of 2021, 46 companies had benefitted from various tax incentives and duty waiver schemes while the requests of 186 companies were still pending.
These were contained in the tax expenditure statement (TES) reports in the Medium-Term Expenditure and Fiscal Strategy documents posted on the website of the Budget Office of the Federation.
The TES deals with revenue forgone on Company Income Tax, Value Added Tax, Petroleum Production Tax, and Customs Duty. In the TES report for 2019, it was stated that the federal government had forgone revenue of N4.2tn from two main sources, CIT and VAT. For CIT, the estimated amount of revenue forgone was N1.1tn while N3.1tn was for VAT.
The TES report read, “The most significant conclusion is the large size of Nigeria’s revenue forgone from just two of the main taxes, i.e., CIT and VAT. Nigeria’s non-oil revenue potential is at least twice its current collections.
“The preliminary estimate of revenue forgone from CIT incentives and concessions in 2019 is N1.1tn; for contrast, 2019 CIT collections was N1.6tn. The preliminary estimate of revenue forgone from VAT policy choices and compliance gaps is estimated to be NGN 3.1tn and could possibly be more. It is worth reiterating that revenue forgone from Customs Duty, Excises, Petroleum Production Tax, Personal Income Tax and concessions under the Oil and Gas Zones legislation is still to be computed.”
According to the TES report, the figure for revenue foregone would likely exceed N4.2tn if there were sufficient data, especially from Customs Duty, Excises, PPT, Personal Income Tax and concessions under the Oil and Gas Zones legislation.
By 2020, the figure rose to N5.8tn, with majority of it coming from revenue forgone under VAT. A breakdown showed that N4.3tn was forgone under VAT; N457bn under CIT; N307bn under PPT, and N780bn under customs duty.
It was also noted that five countries accounted for about 86 per cent of total customs relief, with China accounting for nearly two-thirds of total relief granted. Netherlands, Togo, Benin and India were the other top sources of supplies benefitting from the reliefs.
The total figure continued to rise in 2021, hitting N6.79tn, with revenue foregone on VAT accounting for most of it. A breakdown showed that N3.87tn was forgone under VAT, N548.40bn under CIT; N337.70bn under PPT; N1.84tn under customs duty; and N111.15bn under imports VAT.
For the three-year period, therefore, the federal government had to forgo a total of N16.79tn in tax reliefs, Customs duty waivers and concessions
Under this figure, tax exemptions covered imported goods covered by diplomatic privileges, military hardware, fuels and lubricants, hospital and surgical equipment, aircraft (their parts and ancillary equipment), plant and machinery imported for use by companies in export processing zones, health and medical supplies to abate the spread of COVID.
Other exemptions included: reliefs on the presidential initiative on COVID-19 supplies, Import Duty and VAT on commercial airlines.
It was also noted that five countries accounted for about 92 per cent of total Customs relief with China accounting for nearly half of the total relief granted. Singapore, Netherlands, Togo, Benin Republic and India were the other top sources of supplies benefitting from the reliefs.
Meanwhile, the beneficiaries of the tax reliefs and concessions included Dangote, Lafarge, Honeywell and 43 other major beneficiaries. As of the end of 2021, 46 companies had benefitted from the tax incentive scheme while the requests of 186 companies were still pending.
They were beneficiaries of the pioneer status tax relief under the Industrial Development Income Tax Act with tax reliefs for a three-year period. Others included: African Foundries Limited, Royal Pacific Group Limited, Kunoch Hotels Limited, Princess Medi Clinics Nigeria Limited, Medlog Logistics Limited, and Masters Liquefied Gas Limited.
Economic experts have stressed the role of tax waivers in driving economic growth but questioned the transparency and objective rate of the federal government in granting the tax waivers.
The Managing Director/Chief Executive Officer, Cowry Asset Management Limited, Mr Johnson Chukwu, explained that what was forgone could not be seen as revenue leakages, describing it as delayed gratification which would enable the federal hovernment to achieve long-term higher revenues.
Tax waivers and other incentives like the provision of land, foreign exchange, import/export facilitation, registration procedures, among others, are usually granted to indigenous companies as part of global best practice aimed at promoting local manufacturing and create employment.
Unfortunately, in Nigeria, this global best practice has not yielded the desired result. Nigerian companies have exploited this window of trade facilitation and ease of doing business to the detriment of the hapless citizenry, who instead of enjoying accessible and affordable goods and services have to contend with a runaway inflation.
Consequently, we urge beneficiaries of tax waivers not to see the gesture as their share of the national cake but to extend its accrued benefits to the people who are the main targets of the waivers. Nigerian manufacturers must rise above mercantilism and profiteering in order to serve the interest of the populace.