The Federal Government has disclosed plans to review and reduce tax waivers given to companies operating in Nigeria as total tax incentives hit N6tn annually.
The Chairman of the Presidential Tax Reform Committee, Mr Taiwo Oyedele, who made the disclosure, said carry out a comprehensive tax waiver review in line with the plan the previous administration had set.
He made the disclosure in Abuja when the Minister of Finance and Coordinating Minister for the Economy, Wale Edun, unveiled the eight-point agenda, which the Bola Tinubu-led government hopes to use in transforming the challenging economic environment.
Earlier reports had put the average annual tax waiver figure at about N5tn. Companies including Dangote Sinotrucks West Africa Limited, Lafarge Africa Plc, Honeywell Flour Mills Nigeria Plc, Jigawa Rice Limited, and Stallion Motors Limited, among others had benefited from tax waivers in form of pioneer status.
Others also include African Foundries Limited, Royal Pacific Group Limited, Kunoch Hotels Limited, Princess Medi Clinics Nigeria Limited, Medlog Logistics Limited, and Masters Liquefied Gas Limited.
The latest move by the government may affect some of these companies and others which have benefited in one form of tax waiver or the other.
The PUNCH had earlier reported that at least 172 companies might not benefit from about N2.4tn tax waivers under the Pioneer Status Incentive and other tax exemptions as the Federal Government moved to phase out some tax waivers.
Speaking at the press briefing, Oyedele said “Incentives in and of themselves are not bad. But you will also agree with me that as time changes, you need to also review what you have done for years.”
He added that Nigeria has about N6tn annual tax expenditure, which needs to be reviewed.
“When you don’t look at your incentive regime, it can get to a point when it becomes a distortion for economic growth because some people benefit and others don’t but they operate in the same sector; so, they cannot compete. You also have to think about it from the point of view of cost benefits. As a country, if we are giving away N1, we need to be able to convince ourselves that the benefit we are getting is more than N1. Otherwise, that is no longer an incentive for the economy but for some individuals.
“If you look at our tax expenditure reports over the past three to four years, on the average, we are giving away around N6tn per annum. That is significant. What we have not been measuring enough is the benefit we are getting from that. But I can confirm to you as part of the mandates given to us by Mr President is to look at the incentive regime in Nigeria so that we can based on data and evident, design what is appropriate for us as a country. In terms of what we want to drive, those incentives will be targeted, data-driven, evident-based, and in most cases, we have subset clauses so that they don’t last forever and we will only find out after losing so much money,” he added.
The tax expert further said the government plans to remove disincentives in the tax system of the country.
Oyedele said, “We think that what is more pressing and even more important than giving incentives is removing disincentives. The good thing about removing disincentives is that is doesn’t cost government money. It stimulates the economy and helps us to create wealth and growth this is inclusive.”
He noted that the country has a N20tn tax gap, which when closed with automated process, can boost government revenue.
He also stressed that when people were allowed to be prosperous and businesses to thrive, the government could make money from revenue naturally.
Oyedele added, “We are looking at the impediments to doing business. Whether you are a small business, large business, multinational or domestic, we want to be a destination for all investors.
“We want Nigerian companies and business to become global. You may even find that some of them can easily earn a lot of foreign exchange more than the amount of money we are making from crude oil. That is the aspiration for us.”
FG woos investors
The Coordinating minister, Edun, said the government was willing to give investors access to lands, airwaves, spectrums, facilities and others, as well as provide an enabling environment for the private sector.
He said the administration had pointed out eight key priority areas, including food security; economic growth; utilizing human resources by focusing on inclusivity, women and youths; focusing on rule of law and anti-corruption, among others.
The minister also said that the Federal Government could not keep depending on borrowing.
Rather, it would attract foreign direct investments and create a business-friendly environment for businesses to thrive in the country.
He said, “Government is not in a position to borrow if you consider 90 per cent debt service to revenue and behind that, a rising debt to GDP ratio. If you look at the last budget, you will see that there is a borrowing requirement built into it, appropriated by the National Assembly. And that is ongoing.
“It is an indication of the commitment of government to find other sources of funding rather than relying on borrowing and to bring down or even eliminate a certain type of borrowing as soon as possible. That type of borrowing is borrowing for recurrent as opposed to borrowing for capital expenditure, which has a return and which is self-financing.
“The way out is to bring in others, other than government by creating room for those who want to invest – foreign direct investors, domestic investors. By giving them access to for example, air waves, spectrum, lands, facilities, so that they can invest, perhaps alongside government in private-public partnership.”
Edun said that Nigeria could leverage its natural resources to become more sufficient financially rather than depending on borrowing like the previous administration.
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“Therein lies the route to less reliance on borrowing. And of course, we do have the God-given asset of petroleum and gas. With better security, as those revenues recover, that means less reliance on borrowing,” he added.
According to the minister, the current administration is looking to attract funds held in domiciliary accounts and funds held by Nigerians abroad into massive investments in various sectors of the economy.
He said that Nigerians had huge funds in domiciliary accounts and held large sums abroad, which could be deployed to rejuvenate the economy and that his team was working to provide the needed environment to attract such funds into the Nigerian economy.
According to the minister, Nigerians in the Diaspora were also expected to play a significant role in the fresh move to take the economy to a position of high growth, through productivity and efficient management of resources.
He said, “But what we can see is that really, there are quite substantial sources of foreign exchange in Nigeria. There is a lot of cash outside the system, which if brought into the system, increases the money supply of dollars, increases in reserves, and so forth.
“There are funds in domiciliary accounts, which if you give people the incentives, they will utilise those for investment in Nigeria.”
Subsidy almost bankrupted NNPC – Kyari
The Group Managing Director of the Nigerian National Petroleum Company Limited, Mr Mele Kyari, noted that the previous fuel subsidy regime almost led the company to bankruptcy.
He said, “As at the time Mr President took over, May 29 to be precise, we were actually at the point of default, and NNPC was facing eminent illiquidity. This is because we keep carrying the subsidy burden. The Federation, that is all the sub-nationals and the federal government, are unable to pay their bills for the subsidy.
“That means the NNPC was carrying the subsidy burden for the whole federation until it became very obvious by the time Mr President took over that it is no longer possible to proceed because we did not have the cash to pay for it, and NNPC could potentially go into negative cashflow. Another word for it is bankruptcy. It was impossible to continue.”
He added that if the subsidy had continued, the country would have been spending about N1tn monthly currently.
He also noted that the petrol consumption in the country has decreased by 30 per cent following the fuel subsidy removal.
“At that point in time, the subsidy burden was about N400bn every month. If the situation had continued, I can tell you in today’s market, pricing in the market and the FX regime, we would have been dealing with close to a trillion naira of subsidy every month at this point in time. We simply don’t have those resources anymore. We are not just saving money, you are also facing reality around what you can afford.
“As a result of that change, we see demand go down by 30 per cent. That means we used to do 66.7 million litres as at 29 of May. As we speak today, we only do about 46 million litres of consumption in the country. By the way, this figure includes cross-border leakages,” Kyari said.
He also said that the oil and gas industry has a huge potential and possibility of producing all the FX requirements of this country.
He added that the current administration is working towards addressing the security challenges, which had stifled production in the oil and gas industry.
With the improved environment, he said that crude production has risen to 1.67million barrels per day.
He disclosed that the NNPC had defaulted on some obligations to meet the subsidy demand.
However, he added that the firm would have a clean slate by November.
He also said the oil and gas sector is faced with 13 different taxes, stressing the need for ongoing tax reforms.
Commenting on the $3bn from the African Export-Import Bank to stabilise the country’s foreign exchange market, he said “It is not a loan. It is a forward sale. Forward sale is the easiest deal. You are simply selling your items for tomorrow, and banks don’t have a problem funding this. This is not the type of transaction that will ever collapse when it is fully clear that the volume that you are selling is already on the table.”
Meanwhile, Edun had said that giving states the whole N5bn subsidy palliative would likely worsen inflation in the country.
To avoid such a scenario, he said the government opted for gradual release, noting that only N2bn of the N5bn palliative intervention promised to the sub-national government has been released thus far.
The minister clarified the N5bn was a combination of loans and grants.
He said, ”On N5bn, it’s a combination of grants from the Federal Government and borrowing by the state. Though the sum of N5bn is the amount, you will agree with me that to release such funds at once across all the states will be self-defeating. It could lead to an inflationary spiral, and exchange rate changes. So, it is N2bn naira that has been released as an initial intervention and the FCT will be included”.
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