The Nigerian government granted a total of N16.79 trillion as tax waiver to top companies from 2019 to 2021, a report by PUNCH has shown.
The figure includes revenue forgone on Company Income Tax, Value Added Tax, Petroleum Production Tax, and Customs Duty
In the tax expenditure statement (TES) by the Budget Office of the Federation for 2019, the Federal Government had forgone revenue of N4.2tn from two main sources, CIT and VAT.
For CIT, the estimated amount of revenue forgone was N1.1tn while N3.1tn 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 N1.1tn; in contrast, 2019 CIT collections was N1.6tn. The preliminary estimate of revenue forgone from VAT policy choices and compliance gaps is estimated to be NGN 3.1tn 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 N4.2tn 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 N5.8tn, with the majority of it coming from revenue forgone under VAT. A breakdown showed that N4.3tn was forgone under VAT; N457bn under CIT; N307bn under PPT, and N780bn 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 N6.79tn, with revenue foregone on VAT accounting for most of it. A breakdown showed that N3.87tn was forgone under VAT, N548.40bn under CIT; N337.70bn under PPT; N1.84tn under customs duty; and N111.15bn under imports VAT.
For the three years, therefore, the Federal Government had to forgo a total of N16.79tn in tax reliefs, Customs duty waivers and concessions.
Companies To Lose Tax Waiver If Finance Bill Is Passed
The federal government has however begun moves to cut short the tax waivers by 2022 with the finance bill sent to the National Assembly by President Muhammadu Buhari.
If passed into law, about 172 companies including Dangote, Emzor and 7up Bottling company will miss out on the N2.4tn tax waivers under the Pioneer Status Incentive and other tax exemptions.
The Minister of Finance, Budget and National Planning, Zainab Ahmed, said the bill was designed to support the implementation of the 2023 budget as the government steps up efforts to grow tax revenue.
The latest move by the government will also affect companies operating in 71 industries or sectors that are eligible for Pioneer Status Incentive. The sectors include manufacturing, solid material, pharmaceuticals, information and communication, trade, construction, waste management, electricity and gas supply, tourism, and infrastructure.
According to the second quarter PSI report released by the Nigeria Investment Promotion Commission, 172 companies are awaiting approval to become beneficiaries of the tax incentive.
Some of the countries with pending applications included Dangote Coal Mines Limited, Seven/Up Bottling Company Limited, Mikano International Limited, AA Rano Nigeria Limited, CCECC Nigeria Limited, Corinthia Villa Hotel & Suites Limited, and Red Star Oil and Gas Limited.
Others include Max Air Limited, Dukia Gold & Precious Metals Refining Company Limited, Emzor Pharmaceutical Industries Limited, Segilola Resource Operating Limited, Jabi Mall Development Company Limited (extension), Johnvents Industries Limited, Jigawa Fertilizer & Agro Allied Limited, and Flour Mills Nigeria Plc.
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.
Offered under the Industrial Development Income Tax Act with tax reliefs for three years, 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.
The Q2 2022 report by the NIPC further disclosed that there were about 71 beneficiaries of this tax incentive, which operate in sectors that include manufacturing, solid material, pharmaceuticals, information and communication, trade, construction, waste management, electricity and gas supply, tourism, infrastructure, among others.
