A Review of the Nigerian Energy Industry

Tax incentives cause more harm than good to Nigeria — NGO

Action-aid06 July 2013, Abuja – ActionAid Nigeria says the tax incentives offered to encourage Foreign Direct Investments, FDI, in to the country is doing more harm than good to the economy.

The Country Director, ActionAid Nigeria, Mr Hussaini Abdu, said this at the launch of the ActionAid’s Tax Justice Campaign on Thursday in Abuja.

He said that the Federal Government offered vast tax incentives to domestic and foreign companies on both imports and exports, resulting in massive revenue losses for the country.

Abdu said more than N71 billion yearly was lost on duty waivers, with its biggest beneficiaries being importers of rice, palm oil, energy equipment, textiles, steel and vegetable oil.

According to him, a recent media report says that in 2011, government gave import duty waivers to 10 rice and palm oil importing companies alone amounting to N150 billion.

He said that the money being lost should have gone into investments in public schools, hospitals, roads and other

social infrastructure.

He listed some of the incentives as waivers on various imports and exports through the Export Expansion Grant scheme, Tax Holidays, Discretionary Incentives, Free Zones and Stability Agreement.

Abdu said the major losses came from the government’s Duty Suspension Scheme.

“Exporters can import raw materials and intermediate products for use in the manufacture of export products free of import duty and other indirect taxes and charges.

“In addition, the company gets to retain 100 per cent of export proceeds. Also, the Export Free Zone allows a corporation to be exempted from tax for a duration of 12 years.

” These transactions will reflect in our GDP as cash flow generated by transactions in the economy, but it will not necessarily translate to profits or actual growth.

“This shows that granting tax incentives is not the right solution,’’ Abdu said.

Abdu urged the government to evolve investment friendly policies to develop not only conglomerates but small and medium enterprises in the country, to ensure economic growth.

Mr Pukat Shehu, Head, Tax Policy and Legislation Department, Federal Inland Revenue Service (FIRS), said that cost benefit analysis of tax incentives should be reviewed to reflect what the country would gain in return.

He explained that some incentives were given at a loss to the nation and that the masses were the ones that usually suffered the effect of such policies.

He urged ActionAid through its tax justice campaign, to involve all stakeholders, especially the National Assembly, so that solutions could be initiated.

“It is true that low taxes are not necessarily what attract foreign investors. Nigeria’s value added tax is 5 per cent while Ghana is 17 per cent, but we have had instances where investors leave Nigeria to Ghana.

“This goes to show that there are certain things investors appreciate more than a tax system such as a strong democratic

nation and the right infrastructure put in place among others,’’ he said.

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