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Revenue: FG hurting treasury via waivers, concessions

indiscriminate granting of tax waivers and concessions to multinationals and local businesses by the Federal Government has dug a hole in government treasury, Abdulwahab Isa reports

That the government is experiencing disruption in cash flow is evident to most Nigerians. The current locking of horns between the Federal Government and recalcitrant members of the Academic Staff Union of University (ASUU), and often threat by labor unions angling to down tools over workers’ poor welfare package is a reflection government’s unhealthy financial position. No government worth its name willingly shies away from craving improved welfare of employees. Government is experiencing a nosedive in earning from its major source, crude oil, primarily due to massive theft and vandalisation of pipelines.

This leaves it in helpless situation; unable to utilise her OPEC production quota for maximum earned revenue. Regrettably, taxes, the second viable revenue source available to the government, are not spared of challenges. Gifted with a huge population in excess of 200 million people, Nigeria ranks low in tax to Gross Domestic Product (GDP) benchmark with a negligible eation of eight per cent tax-to-Gross Domestic Product. Besides, it is established that the majority of eligible taxable people are not in the tax net. They don’t contribute to the tax basket, making Nigeria one of the least tax earning nations in the globe. While the government is losing taxes by non- compliant eligible tax individuals on one side, huge tax revenue is also being lost to tax waivers granted by the Federal Government to companies and conglomerates. Tax waivers, concessions are incentives, tax exemption granted by the government to conglomerates, firms to spur economic growth. This gesture by the government has turned to self-infliction. Despite sincere efforts of the government to leverage tax exemptions and concessions to birth desired economic growth, the incentive has become a source of huge revenue loss.

Tax concession

overview The Nigerian government holds the exclusive right to waiver/tax concession. Tax exemption is the right to exclude all or some income from taxation while a tax concession is a reduction made by the government in the amount of tax that a particular group of people or type of organisation has to pay or a change in tax system that benefits them. The government deploys this concession to spur economic growth including but not limited to creating employment opportunities. The Federal Government foregone N16.76 trillion in revenue to tax reliefs and concessions given to large companies between 2019 and 2021. As of the end of 2021, 46 companies had benefited from various tax incentives and duty waiver schemes while the requests of 186 companies are said to be pending. According to 2019 annual report of pioneer certificates issued by Nigerian Investment Promotion Commission (NIPC), no fewer than 25 firms were granted tax waivers by the Federal Government under the pioneer certification incentive. Reflecting on the gaping hole excessive tax waivers inflict on government revenue, Executive Chairman, Federal Inland Revenue Service (FIRS), Mr. Mohammad Nami, two years ago, lamented that Federal Government lost over N1.3trillion to granting of tax waivers to companies operating in three sectors of the economy in the last seven years. Nami made the shocking disclosure at an investigative hearing organised for revenue generating agencies in the country. The hearing was organised by the Senate Committee on Finance. Nami, in his remark, said: “When I resumed office, I realised that from these waivers alone, we reviewed just three sectors, a total sum of 1.3 trillion naira was lost as tax revenue in five years. “This is just three sectors out of myriads of waivers that have been granted to these people. “These people mostly are doing well and have much money from Nigeria, they exploited the lacuna in our laws, obtained waivers and worked away with over 1.3 trillion naira in the last five years,” he said.

Bleeding government purse

Tax concession waivers are not injurious to the economy when approximately deployed for good use. It’s a concession geared towards attracting Foreign Direct Investments (FDIs), seeking efficiency in the entire economy value chain. Tax exemption is supposed to be a nexus for lowering the cost of production for beneficiaries. Over time this well-intentioned government policy has been abused. Rather than aiding economic growth and spur development, tax waivers have become a source of revenue bleed to government treasury. Tax incentives impose significant costs on the government, including fiscal losses, rent-seeking and economic distortions on its fiscal operations. Over the years, the tax relief gesture by the government breeds unintended windfalls by rewarding firms for what they would have done in the absence of the incentive. Tax incentives which are supposed to be succor to the government turns to be raid on the federal government’s treasury.

NASS’s reaponse

Tax incentives/waivers have become regular features of government’ fiscal policy plan. In preparation for 2023 fiscal policy budget as reflected in 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP), the document proposed a N6 trillion tax and import duties waivers in the N19.76 trillion 2023 budget. Also contained, is a deficit of N12.4 trillion. Submitted for scrutiny at the upper chamber of the National Assembly two weeks ago, the senate queried its appropriateness. Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, led heads of revenue generating agencies to the meeting with the lawmakers. The Senate directed the Nigeria Customs Service (NCS) to carry out a downward review of the proposed waivers in the fiscal document by 50 per cent.

In addition, it asked the Federal Inland Revenue Service (FIRS) to critically look into the seeming abuse of tax credit by some companies. The finance minister had in her opening remarks, informed the committee that the N19.76 trillion proposed as the 2023 budget would have a deficit of N12.43 trillion because N6 trillion had been projected as tax and import duty waivers, while fuel subsidy would gulp a whopping N6 trillion. Uncomfortable with the Minister’s submissions, the Chairman of the Senate panel, Senator Solomon Adeola (APC Lagos West), told her that both the projected N12.43 trillion budget deficit and the 6 trillion tax and import duty waivers should be critically reviewed downward before sending the proposals to the National Assembly for consideration and approval.

He also told the minister to look into the list of beneficiaries of the waivers for required downward review to N3 trillion in order to give room for the reduction of the N12.43 trillion deficit figure. Adeola said: “The proposed N12.43 trillion deficit for the 2023 budget and N6 trillion waivers are very disturbing and must be critically reviewed.

“Many of the beneficiaries of the waivers are not ploughing accrued gains made into expected projects as far as infrastructural developments are concerned. “The same goes for the tax credit window offered by the FIRS to some companies. Billions and trillions of naira can be generated by the government as revenue if such windows are closed against beneficiaries abusing them and invariably provide required money for budget funding with less deficit and borrowings.

“The NCS should help in this direction by critically reviewing waivers being granted on import duties for some importers just as the FIRS should also review the tax credit window offered to some companies without corresponding corporate social services to Nigerians in terms of expected project executions like road construction.” According to him, generally, the issue of waivers should be taken strongly by relevant authorities because Nigeria does not have the capacity for now. “We cannot accommodate this N6 trillion tax waivers. It is in this way that the committee frowns at the projected N12.41 trillion budget deficit contained in the 2023- 2025 MTEF/FSP and the alarming projection of ‘no provision for treasury-funded MDAs’ capital projects in 2023. This scenario is unacceptable and we must find ways to drastically reduce the deficit.

“It is apparent that the borrowing trends cannot be allowed to continue unchecked and conscious efforts must be made to reduce budget deficits. Achieving these goals requires us to look inwards towards increased revenue generation, blocking of leakages and restraints on what are generally frivolous expenditures by MDAs, particularly the Government Owned Enterprises (GEOs),” he said.

Last line

Unregulated tax exemption and concessions are among sources of revenue leakages in government’s coffers. It’s high time the government reassessed its usefulness and be circumspect in granting waivers.

 

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