20 October 2015, Abuja – The Nigerian Extractive Industries Transparency Initiative, NEITI, and other experts in the oil and gas sector have called on the Federal Government to desist from issuing pioneer status, PS, to companies in the oil and gas industry. Pioneer Status is a tax holiday incentive, designed by the federal government and backed by the law granted to targeted industries, products and services, designated as priority areas and growth drivers of the economy.
The Nigerian Investment Promotion Council, NIPC, had between 2009 and 2014, granted pioneer status to a total of 22 oil and gas companies. But NIPC has now issued letters to some of the companies that were granted the incentives for five straight years, informing them that the holidays should have been for an initial three years period. This is in line with the Industrial Development Income Tax Relief Act, IDITRA, of 1971, which states three years but renewable for another two years.
This no doubt is generating controversy owing to the dwindling oil revenue, the major source of income for the country. The Federal Government has so far defended its action, citing employment generation among other economic benefits for granting the waiver.
But a group known as Tax Justice and Governance Platform, TJ&GP, in a report tagged, ‘’Pioneer Status in Oil and Gas Industry; Is It Worth It?,” said the colossal revenue losses of $2.1 billion to the pioneer status far outweighed the little benefit of 2,208 employment generated by 11 of the 22 companies.
At a forum to deliberate on the report in Abuja, stakeholders questioned the rationale behind the tax exemption to companies in the oil and gas industry by NIPC management. A Representative of NEITI, Mr. Abdultayib Sheidu, said the country witnessed a colossal loss due to waiver granted to some oil and gas industry. He maintained that some of the companies granted tax waivers had outgrown the pioneer status, but they still hold on to the pioneer status at the expense of the country’s development.
Sheidu noted that companies in the oil and gas industry did not need to be granted pioneer status, because activities in the upstream oil and gas sector are regulated by the Petroleum Profit Tax Act, PPTA, which gives tax breaks and concessions. According to him, “Without giving PS to oil and gas companies, they always come to do business in the country and make their money.
So, why are we doing that? Granting them PS does not increase our revenue status or increase economy, rather, the country is at loss.” The Country Officer, Natural Research Governance Institute, Mr. Garba Dauida, added that those companies currently enjoying pioneer status were not only on tax holidays, but are also running away from other charges. These include environmental charges, Nigeria inland waterway, etc, saying that they made operation difficult for regulatory agencies.
He said: “It is high time, Nigeria rose up to put an end to this. It is just the way we are in this country. We can turn blue to white in the way it suits us. “Who are the owners of these companies that benefited from the PS? We will be surprised if they are revealed. PS is wrongly allocated within the NIPC. It does not have it within its mandates.”
Consequently, Dr Tochukwu Nwachukwu, who presented the report, recommended that “the National Assembly should monitor the action of government agencies in granting tax incentive. “The FIRS should ensure that PS beneficiaries file tax returns annually with sanction imposed on defaulters. “NIPC capacity in monitoring pioneer companies should be strengthened, while removing matured companies from the pioneer status list.
“Government should sign an MOU with marginal field operators on the establishment of guaranteed margins for the companies.” The report also stressed the need “to ensure proper dissemination of information about incentives for oil and gas sector operators as embedded in the PPTA.”
In an interview, a Senior Programme Officer, Civil Society Legislative Advocacy Centre, CISLAC, Mr. Kolawole Banwo, noted that although the government had initiated a process to review the existing incentive regime, every Nigerian should rise up to ensure that the same people did not shortchange the country through the backdoor arrangement. He maintained that the report is an eye opener to the rot in the oil and gas se