11 March 2016, Lagos — Nigeria may have lost $3.3 billion on the Nigerian Liquefied Natural Gas, NLNG, project as a result of the 10-year tax holiday granted during the implementation of the project, a study has indicated.
A study carried out by the Netherlands-based Stichting Onderzoek Multinationale Ondernemingen, SOMO, also known as Centre for Research on Multinational Corporations on the project and the tax and other fiscal incentives granted its operators and published January this year showed that the amount should be considered a minimum estimate based on conservative assumptions.
“SOMO aims to contribute to the discussion on responsible tax governance and financial transparency through this report by presenting factual evidence that tax breaks given to multinational corporations create unacceptable advantages for them that work against the interests of the Nigerian public.” The report which documented that NLNG made a total profit of around US$ 29.5 billion over the period 2004 to 2013 maintained that the 49 per cent shareholder, the Nigerian state oil company NNPC, has received a large part of these profits.
The NGO disclosed that the cost of extending NLNG’s tax holiday to 10 years based on publicly available NLNG financial reports (obtained from the Nigerian company registry). SOMO stated that it had compared the potentially foregone Nigerian government tax revenues that result from the NLNG’s extended 10-year tax holiday (as established by the NLNG Act) with what would have been received if it had been granted the usual five-year tax holiday which all other companies in Nigeria qualify for under the Industrial Development (Income Tax Relief) Act 1971.
The report indicated that that factoring in a further two years of applying other legal provisions, for example, the carrying forward of deferred tax assets, means the company actually enjoyed a 12- year tax holiday between 1999 and 2011, reducing its tax bill to almost zero during the period. It maintained that based on a calculation of the potential amount of tax that would have been payable by NLNG in case of the normal tax relief period in Nigeria of five years, the total potential in lost tax to the Nigerian government amounts to a staggering US$ 3.3 billion between 2005-2013 – an average tax loss of around US$ 367 million per year.
The report indicated that in a country where more than half of the population lives below the poverty line, Nigeria’s citizens could have benefited enormously from these foregone tax payments.