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Finance Bill: Dangote, 7UP, 170 firms may lose N2.4tn tax waivers

The Pioneer Status Incentive and other tax exemptions worth around N2.4 trillion may not be available to at least 172 companies as the federal government seeks to phase them out starting in 2022, according to research by The PUNCH.Information Guide Nigeria

With the 2022 Finance Bill that President Major General Muhammadu Buhari (ret.) forwarded to the National Assembly, the Federal Government will gradually eliminate the tax exemptions for mature sectors.

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The law, according to Zainab Ahmed, Minister of Finance, Budget, and National Planning, is intended to aid in the implementation of the 2023 budget as the government intensifies attempts to increase tax collection.

Companies involved in 71 sectors or industries that qualify for the Pioneer Status Incentive will also be impacted by the government’s most recent action. The industries included in this list are manufacturing, solid materials, medicines, information and communication, trade, construction, waste management, energy and gas supply, tourism, and infrastructure.

The 172 companies are awaiting clearance to get the tax incentive, according to the Nigeria Investment Promotion Commission’s release of the PSI report for the second quarter.

Applications from the following nations were still pending: 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 Flour Mills Nigeria Plc, 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 Dukia Gold & Precious Metals Refining Company Limited.

Companies are exempt from paying income tax for a specified amount of time thanks to the federal government’s incentive program known as pioneer status. Any portion or all of this tax exemption is possible.

The incentive, which is provided under the Industrial Development Income Tax Act and includes tax exemptions for three years, is typically viewed as a business policy intended to encourage economic investment.

Only those goods or businesses that are brand new to the nation are qualified for this pioneer distinction.

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The NIPC’s Q2 2022 report further revealed that there were approximately 71 recipients of this tax incentive, who work in a variety of industries including manufacturing, solid materials, pharmaceuticals, information and communication, trade, construction, waste management, electricity and gas supply, tourism, and infrastructure.

47 brand-new applications

47 new applications were submitted in 2022, with 21 (20 new and one extension application request) submitted in Q1 2022 and 26 (24 new and two extension application requests) submitted in Q2.

The fact that only 14 businesses received the PSI in Q1 and 12 businesses received the tax incentive in Q2 was also revealed.

But because the federal government intends to gradually eliminate the pioneer tax advantage, many businesses might not be able to profit.

The planned 2022 Finance Bill, according to a recent story in The PUNCH, would increase the federal government’s sin taxes and reduce tax incentives starting in 2023.

According to a copy of the minister of finance, budget, and national planning, Dr. Zainab Ahmed’s recent public presentation of the planned budget for 2023, this is what happened.

The finance minister said that the 2022 finance bill would put a strong emphasis on five areas, including tax equity, climate change and green growth provisions, job creation and economic growth, reforming tax incentives, and generating revenue/improving tax administration. The minister was speaking to reporters outside State House following the Federal Executive Council meeting last Wednesday, which was presided over by Vice-President Yemi Osinbajo.

She said, “The purpose of the tax equity reforms is to combat tax evasion and aggressive tax planning practices that some companies operating in Nigeria are involved in but also enabling the utilisation of ICT tools and using international best practice to assess taxpayers tax on a fair and reasonable basis.

“The climate change green growth focus will complement non-fiscal reforms that are designed to reduce greenhouse emissions and also to facilitate domestic and international investment in climate adaptation, as well as mitigation and also to enhance green growth and create jobs.

“The third focus area, job creation, and economic growth is also designed to complement the ease of doing business and other reforms to support capital formation by the private sector as well as to foster enabling business environments for micro, small and medium enterprises for youth as well as women in businesses. It will also help to enhance the performance of businesses that are in the fintech, the ICT, entertainment, fashion, sports as well as the art space.”

“The fourth tax incentive is to phase out antiquated pioneer, and other tax incentives for mature industries and moving a revised set of incentives for real infant industries. Through economic governance reforms we have also made proposals to reduce tax expenditure, which is equivalent to foregone revenue to support fiscal space. It is also based on statistics to gradually transition away from expensive and redundant tax incentives to incentives that are rewarding performance.

“The fifth focus area is revenue generation and tax administration is to complement the ease of doing business and other reforms that enhance tax administration as well as to introduce targeted fiscal and non-fiscal reforms to amend, address and cure defects in existing tax and non-tax laws and regulations.”JAMB portal

Ahmed said the bill, when passed into law, would amend a number of fiscal laws in Nigeria.

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 Over N2tn revenue

The Federal Government had previously estimated that it will forego N2.4tn in revenue from corporation income tax cuts between 2022 and 2024. However, the most recent development suggests that the government may suspend the different tax breaks in accordance with the stipulations of the Finance Bill.

The N2.4tn tax prediction was included in the Medium-Term Expenditure and Fiscal Strategy Paper 2023-2025, which is available on the Budget Office of the Federation’s website.

The Federal Government estimated that the tax waiver will cost N658.08 billion, N789.70 billion, and N947.64 billion in 2022, 2023, and 2024, respectively.

According to the PUNCH, the Federal Government lost N16.76tn in revenue due to tax breaks and concessions granted to multinational corporations between 2019 and 2021.

The TES is concerned with revenue lost from Corporation Income Tax, Value Added Tax, Petroleum Production Tax, and Customs Duty.

According to the 2019 TES report, the Federal Government lost N4.2tn in revenue from two key sources: CIT and VAT.

CIT revenue was anticipated to be N1.1tn, while VAT revenue was estimated to be N3.1tn.

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; for 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 analysis, the sum for revenue foregone would likely surpass N4.2tn if sufficient data were available, particularly from Customs Duty, Excises, PPT, Personal Income Tax, and concessions under the Oil and Gas Zones law.NYSC portal

By 2020, the sum had risen to N5.8 trillion, with the majority of it coming from VAT income lost. A breakdown revealed that N4.3tn was lost due to VAT, N457 billion due to CIT, N307 billion due to PPT, and N780 billion due to customs charge.

It was also revealed that five countries accounted for almost 86% of overall customs relief, with China accounting for nearly two-thirds of total relief awarded. The Netherlands, Togo, Benin, and India were the other leading sources of supplies that benefited from the reliefs.

The entire sum increased further in 2021, reaching N6.79 trillion, with revenue forfeited on VAT accounting for the majority of it. A breakdown revealed that N3.87tn was foregone due to VAT, N548.40bn due to CIT, N337.70bn due to PPT, N1.84tn due to customs duty, and N111.15bn due to import VAT.

According to a prior study by The PUNCH, the Federal Government had to forego a total of N16.79tn in tax breaks, Customs duty exemptions, and concessions throughout the three-year period.

Experts warn FG

However, economic experts have emphasized the relevance of tax waivers in driving economic growth while questioning the Federal Government’s openness and objective rate in awarding tax waivers.

In response, Mr Johnson Chukwu, Managing Director/Chief Executive Officer of Cowry Asset Management Limited, stated that imposing new taxes and reducing tax incentives may have a negative impact on Nigerian manufacturers and consumers.

He said, “We could see a situation where the manufacturers are unable to pass on those costs and absorb the costs, which will reduce their profitability and even the appetite for further investments. If they are able to pass those costs to consumers, this will be a difficult situation because of the existing weak purchasing power.”

Dr Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise, recently told The PUNCH that there was nothing wrong with waivers if they were in line with tax rules.

Tax breaks, he said, were required to encourage investment and the development of some pioneer enterprises.

He said, “The whole idea of incentives is to grow the economy. When you are growing the economy, you are not only looking at revenue, you are looking at employment and multiplier effects. In the medium to long term, you will get this revenue by the time you are able to grow these investments. It is inappropriate to see it as revenue loss unless the incentive policy itself is discriminatory.

He emphasized that the process should be transparent and viewed as a government effort to grow the economy.

Mr Taiwo Oyedele, Fiscal Policy Partner and Africa Tax Leader at PricewaterhouseCoopers, stated that tax incentives were critical in stimulating investments when correctly 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. For instance, the N16tn tax for the last three years includes VAT exemption on basic food items which is necessary given the level of poverty and rising food inflation.”

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.JAMB Result

In response, the Director-General of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture acknowledged that tax breaks are necessary to spur private-sector investment, but noted that the country’s economic reality has inevitably impacted the government’s ability to grant tax breaks to businesses.

He said, “We will always want to support our members, but we know that the government is in a precarious situation also. The government has cried out that there are dwindling resources. Even though we are advising that there should be more fiscal discipline so that whatever comes in can be judiciously appropriated.”

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Emediong Silver

Emediong Ekpe is a graduate of English. A professional Sports journalist/analyst, and a spoken word artist. He is passionate about decimating information and putting smiles on people's faces via news writing. Whatapp: 08088735884

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