13 August 2013, Sweetcrude, Lagos – Leadership in developed nations utilize taxation as a tool to develop social infrastructure, create jobs, stimulate investment in manufacturing, promote indigenous asset ownership and to increase exportation of finished products, goods and services. This is not the case in Nigeria. The fact that our taxation policy is very operational with a focus on revenue generation rather than being strategic is tragic. Our poorly synchronized taxation policy provides enough evidence to the strategic investor that the Nigerian leadership as quite unserious about poverty alleviation and job creation.
Clause 2 of the Nigerian Oil and Gas Industry Content Development, NOGICD, Act reads: “All regulatory authorities, operators, contractors, subcontractors, alliance partners and other entities involved in any project, operation, activity or transaction in the Nigerian Oil and Gas industry shall consider Nigerian Content as an important element of their overall project development and management philosophy for project execution”. It gladdened my heart when I imagined the transformational possibilities that the Act and this particular clause could achieve if our taxation equation was rightly pitched to encourage and attract the much needed Foreign Direct Investment, FDI. Alas barely any major project has achieved Final Investment Decision, FID, in the past 3 years.
In many countries tax holidays are granted to investors as an incentive for the much needed investments that will create immediate jobs and reduce unemployment. A tax holiday can be used alongside a Local Content law to stimulate in-country investment, domiciliation of activities and domestication of technology. The enactment of the NOGICD Act should have been implemented simultaneously with a power supply and tax incentivized plan. Rather than jump start our economy, Nigeria is now promoting poor corporate governance and harsh regionally focused taxation regimes in the PIB. The average entrepreneur in our hydrocarbon industry is not only faced with multiple regulation (SON, NIMASA, DPR, MPR, FEPA, NCDMB, NOSDRA, etc) but also multiple taxes paid to the State and Federal Government: Companies income tax; Withholding tax on companies; Petroleum Profit Tax; Value-added tax (VAT); Education tax; Capital gains tax, NSITF Payments, Stamp duties, NDDC levies in some cases etc. Investors who take taxation seriously may not find Nigeria a viable investment destination as there are too many layers of regulation and taxes for an honest business to survive.
As if all these are not enough, we have another internal financial hemorrhage because about 400,000 barrels of oil and approximately $40m of revenue is being lost daily through pipeline vandalism, illegal bunkering and halt in production etc as stated by our Minister of Finance. It would be impossible to achieve such a feat except very highly placed persons above the law are involved in the crude oil sabotage. To think that this high level pilfering is tax free points to the fact that multiple taxation is only for a few law abiding entities or companies. The general masses will continue to suffer as they get the direct brunt of higher cost of living occasioned by multiple taxation if these losses are not addressed urgently.
Why must a country with a population of over 160 million survive on less than 5000MW of public power supply? Why does Nigeria have such poor infrastructure (roads, railways, waterways, airports, ports etc)? Why is Nigeria’s educational and health system so substandard and inadequate?. If we add up all the collection made from custom duty and the multiple taxation, Nigeria has no excuse to be in the current state of infrastructural shambles that she is in currently. The long awaited gas and industrial revolution has not occurred simply because there is no power to drive it and our fiscal regime is not appealing to most investors.
If Nigeria does not pay attention to the advice of her strategic thinkers and planners, Financial Analysts, Economists and Financial Experts but continues to depend on voodoo economics we may become unable to meet our financial obligations and energy requirements to the detriment of over 160 million people. The long overdue passage of a “win-win” Petroleum Industry Bill should be questioned and appropriate persons sanctioned for the over 5 years lost in transit. The adverse impact of the delay of the PIB passage has resulted in huge divestments and lost FDI. More focused and proactive hydrocarbon producing countries such as Angola, Mozambique, Ghana, Equatorial New Guinea, Democratic Republic of Congo etc are now beneficiaries of Nigeria’s losses.
There is an urgent need to reel in all government agencies for a holistic discussion on taxation, then pass the PIB into law. We cannot afford to kill the goose that lays our golden egg!!!!!.