Tax holiday: Controversy rages, concerns mount over VAIDS

By Omodele Adigun, Bimbo Oyesola and Isaac Anumihe

“There’s no need to give waiver to any company whatsoever for the fact that they are rehabilitating roads or (executing) any other projects for that matter. Such projects are supposed to be a Corporate Social Responsibility (CSR), which is actually mandatory for these companies, bearing it in mind that they make huge money from the country.”
This was an opponent’s killer punch aimed at the jugular of the proposed amendment to the Company Income Tax Act (CITA), which seeks to increase pioneer status of new companies in Nigeria from five to 10 years.
The fireworks was sparked off by the duo of the Federal Inland Revenue Service (FIRS) and the Institute of Chartered Accountants of Nigeria (ICAN) last week when they slugged it out at a public hearing on the proposal.
The tango must have pushed to the sidelines the recently launched Voluntary Assets and Income Declaration Scheme (VAIDS) , which seeks to boost the much-needed internally generated revenue profile of the Federal Government and the states.
But while the tax authority opposed the proposal, ICAN supported it.
In his own submission, the chairman of FIRS, Babatunde Fowler, okayed the current provision in CITA, which gives five year tax holidays to new industries.
The tax collecting agency argued that giving further incentive to companies would lead to loss of revenues to the nation’s coffers.
Using the telecommunications industry to buttress his argument, Fowler submitted that five-year is ‘more than sufficient’ for investors to recoup their profit.
He said: “When one looks at the telecommunications companies that were given incentives a lot of them actually did make profit before the pioneer status of the incentives even expired.
“So, I wouldn’t like us to grant such incentives for a period of 10 years. We believe that 10 years is a very long time for any business not to generate profit. And I believe investors would have taken due recognition of their investments and the time that they expect for profit to be made.”
Section 34 (a) of the proposal states that “A new company going into business where infrastructures such as electricity, water or tarred road are not provided by the government ‘ shall be exempt from tax for the first ten years of its operation.”
According to the FIRS boss, most investors hardly invest in areas where they can’t make profit within five years of investment.
But ICAN differed, arguing that this would encourage entrepreneurs and existing companies to expand their operations.
The Institute, however, recommended that the proposal should also include existing companies going into a line of business where infrastructures are not provided by the government.
ICAN President, Mallam Isma’ila Zakari had said:
“This is a welcome development that will encourage entrepreneurs to invest and expand their operations. However, this section should be amended to include existing companies. This would encourage existing companies to expand their operations so as to benefit from the incentives when they invest in such locations.
“We recommend that the new section should read as follows: ‘A new or existing company going into business where infrastructures such as electricity, water or tarred road are not provided by the government shall be exempted from tax on its operation for the first five (5) years for existing company and ten (10) years for a new company’.”
In his opening remarks, Senate President Bukola Saraki, said the bill will not only boost employment activities in the rural area but also provide employment opportunities for the teeming unemployed youths in the country .
“The proposed amendments will encourage investments in the industrial and mining sectors of the economy; especially in the rural areas where ordinarily it would have been unattractive to invest..
“It is expected that when the CITA Bill is passed into law, economic activities that would be generated through tax moratorium assured by this Bill, will pilot the much canvassed employment opportunities for our qualified youths; and open up communities where these companies are sited,” he said.
In pitching tent with the FIRS, Odilim Enwegbara, a development economist, raised concerns on the fate of the Federal Government’s revenue profile should many companies enjoy 10-year tax relief.
His words:
“I agree with FIRS that it is not necessary to hand such long free tax to companies in Nigeria. Five years, as far as I am concerned, will be enough. After all, such a tax holiday is decided based on economic reality not based on short political conveniences.
“For that reason, it is possible that ICAN, driven by the narrow interests of its members and their clients, could be wanting 10 years without basing it on the rigorous understanding of the high cost to the economy; whereas, FIRS, being responsible for the country’s tax matters, said it would affect the country’s revenues. They are better placed in advising government on what should be the best tax policy strategy. I’m sure that those managing our tax revenue know that to increase future tax revenues, more investment is needed today.
“But to encourage more investors to invest in the economy, investment incentive, such as providing tax holiday, is important since it will encourage more factories from nations with high taxes to nations with less taxes. That is why countries like ours always believe in a policy of granting company long tax holiday, believing that that is enough to offset the high cost of doing business.
“But there’s a limit to using such tax holiday to bribe companies. Rather than giving away tax money to friends of politicians in the false name of making ours an investor-friendly economy, such tax money should be collected and invested in infrastructure that reduces the very high cost of doing business in Nigeria, which, being the highest among peer economies, is reason the country continues to witness low investment by the real sector firms.”
The Nigeria Labour Congress (NLC) was on the same page with the opposition by tearing the proposal into pieces, saying the plans to grant 10-year tax waiver to any businessman would further impoverish the country.
“Funds that would have been used for infrastructural development would be going into private pockets.”
Its President, Ayuba Wabba, added that it would amount to robbing Peter to pay Paul.
He stated: “This is just robbing the workers to cushion and provide luxury lifestyles for the affluent in the society.
“We have said it severally, that it is only the poor workers that pay tax in this country because their taxes are being deducted right from the source. This is called PAYE (pay as you earn)”.
He added that the big companies do not pay taxes and if they do, they have never paid correct amount.
The number one worker said some international companies were recently exposed in the Panama papers for evading taxes in the country.
“But rather for our authorities to go after these multinationals, they are now planning to give them more room to steal from the country and the poor in the name of tax waiver.”
Wabba explained that there was no need to give waiver to Dangote or any company whatsoever for the fact that they are rehabilitating roads or any other projects for that matter.
According to the NLC boss, such projects supposed to be a Corporate Social Responsibility (CSR), which is actually mandatory for these companies, bearing it in mind that they make huge money from the country.
He said: “What is the quantum of the money these companies you are giving tax waiver are making and what is the value of the project, compared with the amount of tax they would have paid in 10 years.
“As far as we are concerned, this would affect other areas of development. Let them pay their tax and let government do what it has to do.
“It is just a misplaced priority. In other climes, people will do it without asking for a dime. You can see Bill Gates coming from another continent to Nigeria and other African countries to touch lives.”
Wabba said Dangote had earlier made commitment to do some roads in Lokoja when he put up the cement factory there, but said it was not clear if the road projects have been completed.
“Our point here is that it would not augur well. When you see this multi nationals, are they even paying correct tax? Are they not taking out all they have made in the country? The is the more reason the government should do tax audit to know how much tax they are supposed to pay and how much they are going to incur on their supposedly CSR”, he stressed.
The President of the Manufacturers Association of Nigeria (MAN), Frank Jacobs, agreed that the 10 -year tax waiver would be out of context, but explained that government decided to waive the tax for the companies because of the huge amount involved.
According to him, the rehabilitation was being undertaken not only by Dangote, but Flour Mills and some other companies around Apapa under the Road Trust Fund.
“Under the Road Trust Fund, government came up with the idea that any company that wants to construct road, the fund spent would be spread over some years in form of tax relief. For the Apapa project, government came up with N20 billion to do the road, but the companies said it could be done for N4.2 billion, so government said they should handle it”, he said.


Link: Tax holiday: Controversy rages, concerns mount over VAIDS

Be the first to comment

Leave a Reply

Your email address will not be published.