New Telegraph

Experts: How Nigeria Lost N16trn In 3 Years To Tax, Duty Waivers

…Say Economy Bleeds, Revenue Drainage

In this report, PAUL OGBUOKIRI notes that Import Duty waivers, which have been rising yearly, have become a special government subsidy to the super rich, politicians and the well connected in the society. He concludes that it is a drain on government’s tax revenue; even as it has little or no impact on the economy or the general well being of Nigerians

How Nigeria lost N16trn to tax, import duty

As of the end of 2021, 46 companies had benefited 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 forfeited revenue of N4.2 trillion from two main sources, CIT and VAT. For CIT, the estimated amount of revenue forgone was N1.1 trillion while N3.1 trillion 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 N1.1 trillion; for contrast, 2019 CIT collections was N1.6 trillion. The preliminary estimate of revenue forgone from VAT policy choices and compliance gaps is estimated to be N3.1 trillion 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 N4.2 trillion 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 N5.8 trillion, with the majority of it coming from revenue forgone under VAT.

A breakdown showed that N4.3 trillion was forgone under VAT; N457 billion under CIT; N307 billion under PPT, and N780 billion 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 N6.79 trillion, with revenue foregone on VAT accounting for most of it.

A breakdown showed that N3.87 trillion was forgone under VAT, N548.40 billion under CIT; N337.70 billion under PPT; N1.84 trillion under Customs Duty; and N111.15 billion under imports VAT. For the three-year period, therefore, the Federal Government had to forgo a total of N16.79 trillion 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 benefited 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.

This was contained in the Q4 2021 PSI report released by the Nigeria Investment Promotion Commission. The pioneer status is an incentive offered by the Federal Government, which exempts companies from paying income tax for a certain period. This tax exemption can be full or partial.

The incentive is generally regarded as an industrial measure aimed at stimulating investments in the economy. The products or companies eligible for this pioneer status are those that do not already exist in the country.

These companies included: Dangote Si- notrucks West Africa Limited, Lafarge Africa Plc, Honeywell Flour Mills Nigeria Plc, Jigawa Rice Limited, and Stallion Motors Limited. 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.

Waivers as discriminatory policy

Some experts have said that there is nothing wrong in the discriminatory nature of waivers. Rather, what is wrong is that the processes of tax reliefs and waivers granted by the government were not transparent enough and favours those who are undeserving of it.

A former President of the National Accountants of Nigeria, Dr Sam Nzekwe, said there was a need for the process of granting certain tax reliefs, import duty waivers and concessions to be transparent. He said: “The issue here is how transparent it is.

The problem we have is who and who are given the tax waivers and how transparent they are. It is good to give tax waivers, especially to pioneer industries to enable them to start.” For a professor of Economics at the Nnamdi Azikiwe University, Uche Nwogwugwu, such waivers were naturally discriminatory.

“They fulfill an economic theory that says that the rich man should not be taxed so as to provide jobs for the poor man. If the rich were taxed, the poor would not get jobs.

That is what they are applying, which is a negative economic theory.” He wondered why companies would be selected to benefit from such humongous tax waivers when the country’s revenues were seriously leaking. He further questioned why the small and medium-scale businesses, which were the real job creators in the economy, were not provided with waivers.

“The SMEs created 59 million jobs as of 2017, which was around 80 percent of the employment in the economy. The majority, who created these jobs were micro businesses, which made up 99 per cent of the SMEs group. Many of them are looking for just as little as N50, 000 to expand.

Why is our government not looking in this direction?” he queried. However, the Fiscal Policy Partner and Africa Tax Leader at PricewaterhouseCoopers, Mr. Taiwo Oyedele, noted that tax incentives were crucial in driving investments when properly targeted.

He said: “Tax incentives are not necessarily bad. They can be applied in a manner that benefits the overall economy by encouraging investments in critical areas. “However, incentives must be properly designed and targeted to be meaningful while the government must periodically review incentive schemes to ensure they are still relevant and provide value for money.”

He further urged the government to close the non-compliance gap, leverage technology and tax intelligence while ensuring tax harmonisation to boost tax revenue.

“To improve revenue from taxation, the government needs to focus on closing the non-compliance gap, leverage on technology and tax intelligence, while ensuring tax harmonisation both in terms of reducing multiple agencies to a single revenue agency per level of government as well as harmonising multiplicity of taxes,” Oyedele added.

FG grants N5.5tn tax waivers in 2023

The Federal Government has budgeted N5.51tn for tax expenditures in 2023. This was according to the 2023 fiscal framework document obtained by our correspondent.

According to the Tax Foundation, tax expenditures are a departure from the “normal” tax code that lowers the tax burden of individuals or businesses, through an exemption, deduction, credit, or preferential rate. The expenditures can result in significant revenue losses to the government.

Wikipedia also de- scribes tax expenditures as government revenue losses from tax exclusions, exemptions, deductions, credits, deferrals, and preferential tax rates. The tax expenditures in the 2023 budget covers Companies Income Tax, Value Added Tax, Customs Duties, Imports Value Added Tax, Petroleum Profits Tax and Road Infrastructure Tax Credit Scheme.

The N5.51 trillion budgeted for 2023 is 22.07 per cent lesser than the N7.07 trillion budgeted for 2022. The 9th Senate had rejected the N6 trillion tax and import duties waivers originally proposed for the 2023 budget with attendant deficit of N12.4 trillion.

Criticizing the humongous tax and import duties waivers, Senator Olamilekan Adeola, APC, Lagos West and Chairman, Committee on Finance, had said that not only should they be reviewed downward, the list of beneficiaries of the waivers should be ascertained with the view to determining whether they actually needed the waivers.

He said: “Many of the beneficiaries of the waivers are not ploughing accrued gains made into expected projects as far as infrastructural developments are concerned. The same goes for the tax credit window offered by FIRS to some companies.

“Billions and trillions of Naira can be generated by the government as revenue if such windows are closed against beneficiaries abusing them and invariably provide required money for budget funding with less deficit cum borrowings,” Senator Adeolu said.

Towards regulating tax, import duty waivers

It has been disclosed that waivers and exemptions are actually granted for different strategic reasons, including strengthening primary industries that are just coming up to sustain themselves, create employment and contribute to the economy.

However, some companies, individuals and other entities abused the system and short- changed the Federal Government of revenue by hiding under the waiver policy to evade duty on imported goods that are dutiable.

With massive corruption now dogging the policy, a group known as Association of Concerned Citizens of Nigeria on Revenue and Economy (ACCNRE), raised the alarm that Nigeria lost about N16 trillion to fraudulent practices under the policy on imports and related incentives that are more of a scam than the intended economic benefits for the country.

Philip Orji, the founder of the association and chief promoter of a bill seeking establishment of office of the National Inspector General for Tax Crimes Commission (NIGTCC), presently before the National Assembly, said while the waivers were not bad, lack of close monitoring has led to all manner of abuses, where supposed manufacturers offered waivers hide under its cover, by constructing fictitious factories and importing products over many years, thereby short-changing the country of revenue.

He said when the bill becomes a law; it will create a monitoring body which will ensure that the waivers and tax exemptions go to only companies that deserve it as stipulated in the law.

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