Long-Term Tax Incentives to Firms for Projects Dangerous—CISLAC

By Modupe Gbadeyanka

Federal Government has been warned to avoid institutionalising a policy of the granting of long-term tax incentives to corporate businesses to achieve project implementation.

According to the Civil Society Legislative Advocacy (CISLAC), this has the tendency to create a distorted fiscal picture necessary for sustainable revenue and expenditure planning for infrastructural development.

In a statement signed by the Executive Director of CISLAC, Mr Auwal Ibrahim Musa (Rafsanjani), it was also noted that granting long-term tax incentives to firms for project implementation was susceptible to abuse and could create complex tax administration frameworks that would result in long term revenue loss to the nation.

“We are worried that the failure of government to deliver on its promise to Nigerians on infrastructure development, after over two years in office, due to the financial challenges because of dwindling revenues from oil, is driving her into panic mode and making her resort to desperate measures, including falling back on discredited and obsolete approach of handing out tax incentives to show results, probably for electioneering campaign prelude to 2019,” Mr Musa said.

The Executive Director pointed out that, “This must however not be done at the expense of long term national interest and development.”

He said CISLAC finds it disturbing that a country that is posting a debt to GDP Ratio of 16 percent and a budget deficit of about 31 percent of her annual budget in 2017, planning to borrow another $5.5 billion (about N1.9 trillion) to fund the 2017 budget, while already spending about 36 percent of scarce revenues to service debts and is in danger of losing international funding to provide social services, still finds it convenient to concede revenues through the use of incentives.

That this is done in exchange for road construction is quite embarrassing and an indictment of the government, he said.

“We remind the government that in the era of falling prices of commodities, including oil, dipping national oil reserves and waning demand for fossil fuels, countries are seeking alternative sources of revenues through domestic resource mobilization with emphasis of maximizing tax revenues to finance development and meet SDG goals.

“They are blocking tax loopholes, addressing illicit financial flows, tackling tax evasion and avoidance, re-negotiating fiscal regimes in contracts and doing away with granting of tax incentives.

“CISLAC understands that the arrangement reached with the Dangote Group to offer tax incentive in exchange for road construction falls within the purview of the CITA (Exemption of Profits Order 2012).

“However, the new National Tax Policy envisages that tax incentives are sector based and not directed at entities or persons that should provide a net benefit to the country, and equally available to all persons in the same class and be very clear and avoid ambiguity.

“We find no evidence that these principles have been followed in this case. The fact that the design and cost of the proposed road project is unknown, reveal the quality of thinking that went into this decision.

“We also find the review of the Order to extend from five years to ten curious. We are aware that this tendency for hasty and discretionary award of tax incentives is what makes it prone to abuse and corruption as has been with previous arrangements such as the Pioneer Status Incentives which this administration have had to cancel and review.

“For instance, have other cement companies being offered the opportunity to construct roads in exchange for tax incentives? How many of such is government willing to grant and what will be the cost? Is such concession exclusive to some entities? How many micro, small and medium enterprises businesses that have funded road rehabilitation, sunken boreholes and provided other public benefits to which the CITA (Exemption of Profits Order 2012) also applies have benefited from the order?

“CISLAC observes that the process leading up to this has lacked clarity and transparency as a cost-benefit analysis and report has not been publicly disclosed; there are no indications that similar corporate entities were offered equal opportunity.

“We find the very idea of offering firm tax incentives to build a road from which it directly benefits undesirable.

“We therefore call on the Minister of Finance to review this decision and ensure that this practice is stopped to avoid setting a dangerous trend that would hurt the nation in the long run. The actual revenue forgone should be computed and announced for all Nigerian to know by January 2017, as envisaged by the National Tax Policy.

“The process should be open to all potential beneficiaries in the sector, if it must proceed for fairness and equity.

“The FIRS should undertake a thorough audit at the appropriate time and publicly declare the implication to revenue to the Nigerian people.

“We call on the National Assembly Committees on Finance to interrogate this decision to ensure that it passes the tests of transparency and equity and is truly in the national interest. The relevant Committees must carry out effective oversight to ensure value for money, especially since any such incentive is meant to take effect only after the road project is completed.

“We call on the federal government to be mindful of the widening fiscal deficit, increasing national debt and wide infrastructural gap and bleak oil revenues and address these through better tax administration, tackling tax evasion and avoidance and illicit financial flows and ensure that all citizens and corporate businesses pay their fair share of tax.

“Government should adhere strictly to the implementation of the National Tax Policy and follow through her commitments in the OGP national Action Plan This is the only way for sustainable revenues to finance development for our people.”