THE need to review the country’s tax administration and incentive system came to the fore in Abuja on January 19, when a non-governmental organisation, ActionAid Nigeria, presented its report entitled “Leaking Revenue: How a big tax break to European gas companies has cost Nigeria billions.” The report claimed that Nigeria loses about 2.9 billion U.S dollars (N571 billion) annually through tax waivers granted to some companies in the oil and gas sector under the Nigerian Liquefied Natural Gas (NLNG) Consortium. The foreign companies identified as benefitting from the controversial waivers are Shell BV, Total and ENI, which jointly own 51 percent equity in the NLNG project, with the balance of 49 percent belonging to the Nigerian National Petroleum Corporation (NNPC).
A breakdown of the figures show that the Federal Government lost about 1.67 billion dollars to Shell; 977 million dollars to Total and 677 million dollars to ENI, bringing the total to about 3.3 billion dollars or N650 billion at the exchange rate of N197 to one dollar. These sums are based on calculations reportedly obtained from the NLNG annual accounts.
The NLNG has strongly refuted the ActionAid Nigeria report, labeling it as “hypothetical”. It instead, claimed that it has so far yielded “over $33 billion in the form of dividends, taxes and feed gas purchases for the country over the past 16 years, with an additional $5 billion accruing through corporate spend on local goods and services”.
It has become necessary to determine the veracity of the claims of both ActionAid and the NLNG. The present times, with its debilitating economic challenges, call for creative ways to shore up badly depleting government revenues. This is not a time for the government to be losing money to tax waivers. It is rather a period to find ways of earning more money from taxation. Financial experts, including Christine Largarde of the International Monetary Fund (IMF), have added their voice to this imperative.
In the instant case of the tax waivers granted the NLNG collaborating partners, it must be admitted that the tax holiday was for a period of ten years, covering 2004 to 2014. We agree with the NLNG that the granting of waivers to the companies participating in the NLNG project was not unusual going by practices elsewhere in the world. We, however, strongly advise that now that the tax holiday period is over, it should not be extended under any guise.
We are happy that the NLNG paid its first full complement of taxes amounting to $3.6bn to the Federal Government in 2015, part of which was used as bailout for the states. Government and the NLNG partners should strictly adhere to the spirit and letters of the waivers granted. They should also continue to collaborate in the national interest.
The ActionAid Nigeria report ought to be seen as a wake up call on the need to review the administration of tax waivers in the country. Over the years, government has used these waivers, not as a stimulant to grow the economy, but mostly as patronage for cronies. Whether in the importation of so-called “essential commodities” or as an incentive for direct foreign investments, the tax waiver system has been serially abused. This is the time to review and properly strengthen our laws to ensure that the country reaps maximum benefits from tax waivers and other incentives it grants.
While we appreciate the peculiar difficulties in the oil and gas sector and the challenge of getting adequate investments in the sector because of the huge capital outlay that is often involved, we must see these investments as what they really are: an opportunity for investors to make profits, and for the country to optimize the utilization of its resources. These foreign investors are here to make profits, therefore, nothing stops us as a nation from reviewing our laws to serve us better.
As ActionAid Nigeria Country Director, Ojobo Atuluku, put it: “ActionAid and its partners on the Tax Justice Platform want Nigeria and other resource-rich developing countries to begin to review their tax incentive policies.” This seems the way to go if we consider that ActionAid research in the last two years alone shows that developing countries, including Nigeria, lose over $138bn every year to tax waivers. This is a colossal sum that is, perhaps, being lost to corrupt and inefficient tax administration systems.
This is a good time, too, to call on the National Assembly to exercise utmost caution and true patriotism in the present efforts to amend the Corporate Income Tax Act. The amendment, which seeks to extend the granting of pioneer status to companies from five to 10 years, cannot be in the best interest of the country, especially at this time of severe economic challenges.
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