18 June 2017, Sweetcrude, Abuja – The Federal Government lost about N475.8 billion to the granting of tax waivers under the pioneer status scheme to oil and gas companies in the upstream sector between 2009 and 2016, the Nigeria Extractive Industries Transparency Initiative (NEITI), has disclosed.
NEITI put the figure at $1.17 billion between 2009 and 2014. But between 2014 and 2016, the figure rose to $1.56 billion.
The granting of pioneer status to a company in Nigeria is aimed at enabling such a company operating within the pioneer industry to make significant capital expenditure and a reasonable level of return of profit within its formative years without having to pay tax.
Experts have said that the government should revoke taxes, incentives, and waivers already granted to companies and the revenue be used to achieve economic recovery. Due to the abuse of the scheme, Nigerian Investment Promotion Commission (NIPC) has temporarily suspended the pioneer status pending a comprehensive review of the scheme, with a view to increasing transparency.
The former Coordinating Minister for the National Economy and Minister of Finance, Mrs. Ngozi Okonjo-Iweala, in a presentation to the last House of Representative Committee on Finance, explained that tax waivers and concessions have had negative impacts on the country’s revenue base.
Some of the oil companies, which have or are still enjoying the pioneer status in Nigeria are Seplat Petroleum Development Company; Allied Energy; Midwestern Oil & Gas; Brittania Oil Nigeria Limited; Suntrust Oil Company Nigeria Limited; and Niger Delta Petroleum Resources Limited.
Already, about 10 electricity companies, which include Akute Power Limited, Alausa Power Limited, Geometric Power Limited, Greenfield Integrated Energy and Ibom Power Company Limited are under investigation. Others are Isolo Power Gen Limited; Kotco Power Industries; Omega Power Limited; Tower Power Utility Limited; and Ughelli Power Plc.
Some oil and gas firms have also been invited to defend their stand on the abuse of pioneer status. They include Elcrest Exploration and Production Nigeria Limited; Premier Petroleum; Novo Gas Limited; Encrest Exploration and Production Nigeria Limited; Nextee Oil and Gas Nigeria Limited; Network Oil and Gas Limited; and Navas Gas Limited.
The Nigerian Investment Promotion Council (NIPC) has on several occasions, granted the pioneer status retrospectively, thereby causing the government to even refund taxes already paid by the companies, which has cost the Federal Government about N1.850 trillion in revenue.
It was learned that NIPC has issued pioneer status certificates to companies other than those envisaged by the law, including petroleum and production companies. NIPC has even allegedly granted companies for five straight years contrary to extant laws and has also granted unwholesome extensions and even further granted the status to companies that previously benefited from the grant.
But the Executive Secretary and Chief Executive Officer of NIPC, Mrs. Saratu Altine, noted that she was not aware of any abuse of pioneer status. Her words: “Pioneer status has been subject to an administrative suspension aimed at increasing efficiency and transparency. The suspension is expected to be lifted once the ongoing critical reforms are concluded.”
Worried about the revenue lost to the granting of pioneer status to companies in the country, the National Assembly has begun an investigation into the alleged abuse of the pioneer status by companies. Already, some of the nation’s electricity firms, including oil and gas companies that participated in the pioneer status process have been invited to submit their memoranda to a committee raised by the lawmakers.
On the benefits of the special status to Seplat Petroleum Development Company, its Chairman, Dr. Bryant Chukwueloka Orjiako, said that the company had fully re-invested the tax savings from the grant and had delivered verifiable results thereto.
According to him, Seplat is now a key supplier of gas to the domestic market, which is the direct outcome of the pioneer incentive granted to it, and the company aims to continue to contribute meaningfully to the growth and development of the economy.
The Executive Director, Civil Society Legislative Advocacy Centre (CISLAC), Mr. Auwal Ibrahim Musa, stressed the need for the Federal Government to revoke all the taxes, incentives and waivers granted companies operating in the country.
According to him, “There is no way we can continue to give this kind of incentives without any commensurate benefits for the country. We realised that it is another way of depriving the Federal Government the opportunity to raise revenue.
“This is because this incentive is going to the wrong people and they are making a lot of profits without any efforts in the development of the country. At the end of the day, the government is still the one providing the facilities. There is the need to review this policy of granting companies tax incentives because it is not in the interest of the nation.”
Mrs. Okonjo-Iweala had said that waiver and exemption policy was adopted to support government objective to enhance the capacity of the beneficiaries to produce their goods locally, making the country more self-reliant and reduce dependence on imports.
Apart from serving as one of the instruments to support the country’s industrial policy, as in other emerging and advanced economies – such as South Korea, Malaysia and China – she said the fiscal policy incentives were also intended to support the private sector, in view of the regulatory challenges they face in the domestic business environment.
Mrs. Okonjo-Iweala listed the aspects of business covered by the policy to include a reduction in import duty rates or waivers for equipment and materials for the hospitality, power and aviation sectors; agricultural machinery; solid mineral equipment and gas-using equipment.
Others include the steel sector; specific manufacturing sub-sectors, including imports of completely-knocked-down parts; automobiles and tires.
She said the policy, which covered sectors seen as strategic areas capable of stimulating growth, supporting diversification of the Nigerian economy, and creating jobs for Nigerians, also covered additional programmes, such as the Export Expansion Grants, EEG, Scheme designed to promote Nigeria’s non-oil exports.
The sectors of the economy that benefited from the policy include agriculture, aviation, health, mines and steel, water resources, gas, power, as well as donations to states, education and related ministries, departments and agencies, MDAs.
Some of the legal instruments the minister cited that permitted the various categories of exemptions to businesses to include the provisions of Schedule 2 of the Customs and Excise Tariff (Consolidation) Act: 1995 – 2001, Common External Tariff: 2008-2012 (as extended); the Customs and Excise Tariff etc. Act No. 16, 1997; and the Finance Miscellaneous Act 39 of 1990.
She said following the discovery that the discretionary approach adopted in granting waivers to individual businesses had resulted in various abuses, the government resorted to the sector-wide waiver policy to provide specific incentives for some strategic, job-creating sectors.
Describing as “reprehensible” observed abuses by some local car suppliers granted waivers to import vehicles for institutions hosting sporting events to fill the gap for the absence of car leasing business in the country, Mrs. Okonjo-Iweala said the government has adopted more stringent monitoring to curb such malpractices.