The Federal Government has disclosed plans to review and reduce tax waivers given to companies operating in Nigeria as total tax incentives hit N6 trillion 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 N5 trillion. 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 the 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 that have benefited from one form of tax waiver or another.
It had been reported that at least 172 companies might not benefit from about N2.4 trillion in 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 N6 trillion in 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-benefit analysis. 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 average, we are giving away around N6 trillion 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 that part of the mandate given to us by Mr. President is to look at the incentive regime in Nigeria so that we can, based on data and evidence, design what is appropriate for us as a country. In terms of what we want to drive, those incentives will be targeted, data-driven, and 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 from the country’s tax system.
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 it doesn’t cost the government money. It stimulates the economy and helps us to create wealth and growth; this is inclusive.”
He noted that the country has a N20 trillion tax gap, which, when closed with an 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 businesses 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.”
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 youth, the 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, “The government is not in a position to borrow if you consider 90 percent 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 the 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 recurrent as opposed to borrowing for capital expenditure, which has a return and is self-financing.
“The way out is to bring in others other than the 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, and facilities, so that they can invest, perhaps alongside the government in a private-public partnership,”
Edun said that Nigeria could leverage its natural resources to become more financially self-sufficient rather than depend on borrowing like the previous administration.
“Therein lies the route to less reliance on borrowing. And of course, we do have the God-given assets 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 in dollars, increases reserves, and so forth.
“There are funds in domiciliary accounts, and if you give people the incentives, they will use those for investment in Nigeria.”