By Victor Ogiemwonyi
In the last few years, there has been an on going debate about Tax credits, or Tax Waivers, granted Businesses,
to make certain investments, whether in starting a manufacturing plant, or in building some public infrastructure that everyone uses.
There has been a very strong public push back that wants to discredit the entire idea. But Tax credits are an efficient way to allocate and deploy Taxes for infrastructure development.
Yes, Tax credits may have been improperly, used, in a few cases, many of the ones, we know about today,
were properly done and have merit.
In one of the bad example of Tax waivers gone wrong, was granted to a large project , to allow for import of Iron rods, free of clearing taxes, because the project was considered, a good project and Iron rods was needed, in plentiful quantities, ….a clearing Tax will make the project unprofitable, and will be a cost burden that can discourage the investor.
This was granted in good faith and the project was realised.
The only bad thing about this, was the granting Government Agency created a loophole, that gave no limit, in the absolute quantities that the project needed.
This loop hole , whether genuinely over looked, or deliberately created, allowed the investor to continued to import Iron rods, far in excess of what the project required, without paying clearing Taxes for a very long time. The investor, imported enough Iron rods to make him, become a major supplier, ….making him, more money from this activity, than the initial project itself.
It took a vigilant observer to point this out. But, the loop hole created, made billions, for the investor.
You cannot really blame this, on the investor but the government Agency that did not do its work.
Apart from a few, like in this project, many of the Tax credits that have been granted, were proper and most, were done on merit and they have achieved their purpose.
One of the things that make Tax credits an efficient instrument, is that whoever, wants to benefit from the scheme,
must also , be the one to first earn the profits ,
from which the Tax credit, will come. It is actually a future Tax, that may come or may not come to Government. So those who call this evil, do not understand how it works.
If the project is not developed, to start to earn profits , that Government can tax, it means there will be no taxes any way. If the project is developed and become successful like the Dangote Cement plants, it pays billions in Taxes, create thousands of jobs and invest even more into the community they serve.
The point here, is the government cannot earn any tax, unless this project is developed.
So those who shout about the public loosing out, because of these Tax Credits and Waivers,
do not understand the intricacies of it. Tax credits and Waivers are granted all over the world. This Tax incentive is available to anyone who qualifies, apart from the Dangote Group, that is frequently referenced, other large companies,
mostly foreign companies, operating in Nigeria,all use these Tax holidays and Duty waivers .
These Companies, are responsible for creating the large manufacturing and infrastructure developments we see in country.
Tax credits and Waivers bring efficiency to projects, because, only needed, commercially viable projects and strategic infrastructure, will come on stream.
The private sector, will ensure their investments are deployed in efficient and effective ways only. White elephant projects that Governments, usually start and abandon will be minimised.
The private sector needs to get involved, in Infrastructure development. Tax Credits, gives them the entry point.
The case of Nigeria with the very huge infrastructure deficit, that requires billions in investments, means we will have to wait for a long time, to close this gap, if we insist on using budget allocations,
only, to do them.
No Government, any where, in the world can make sufficient budgetary allocations, to build all its infrastructure.
A properly planned partnership with the private sector, using Tax credits and Waivers, will ensure massive infrastructure development, that will be done quickly, efficiently, and effectively. This is what we require today.
Take the recent controversial Lagos – Calabar- Coastal highway, that has caused an uproar lately, the project if properly conceived and executed sincerely, will add to the much needed infrastructure to enhance free movement and create huge employment and will be a significant addition to the economy. But the question is, will this ever be completed? Where is the Government Budget to do it? Should the Government deploy the scarce resources at its disposal, to doing this at this time ? There is no doubt the current Government is doing this to show its audacity and “can do attitude “ and a way to creating the one trillion Dollar economy, it has promised Nigerians in this decade. The only problem is that it could have been done better, if the Government just publicised the intention to do this project and ask the private sector to collaborate.
Government can then open bids for the project, throw in incentives like all the land that will be needed and even promise to take on the burden of settling all the compensation for the land to the various states and land owners. It may even add Tax credits, Waivers and Guarantees for Foreign investors, to encourage them to come and invest.
The recent reforms in our foreign exchange markets, allowing foreign Investors to bring in their money and to take it out when they want, is already a major incentive to attract them.
The project will happen, if investors see it as viable and profitable, in the Longterm . The current proposition, is inefficient and ineffective, and may never quite achieve the goals we are told now, they will achieve, because of the limitations that the project, now face.
It looks hurriedly put in together, and demands serious scrutiny.
The Dangote Example.
Most of the criticism I have read in the media about Tax holidays or Tax credits and Waivers given to the Dangote Group, are misplaced and wrongly directed. They are actually an example , of how and what needs to be done.
Take the Cement manufacturing industry,
that Dangote has built, in the last 20years, …now surpassing what the Lafarge Group ( the Elephant Cement people) could not do in the 50 years they have been here ….
Not only has the Tax waivers and Tax holidays granted Dangote, achieved its objectives, it has over achieved in many respects.
Today, the Dangote Group, employ a large part of our population, pays large Taxes and is also a major contributor to our community development in many parts of the Country.
No body now remembers that, before Dangote built this large Cement industry, Nigeria was spending more than 50% of its Foreign earnings in importing Cement, Which also sometimes create other problems, like the frequent Port congestions.
We now save all that FX demand and even bring in FX from his exports of cement or manufacturing in other countries.
Let us also look at another Dangote Group Tax assisted contribution to infrastructure, …..
The Oworonshoki – Oshodi-Airport Road, project…..
This was constructed under the Tax credit scheme, Nigerians,
can see that, it is easily one of the best infrastructure projects that has been done lately, that was efficiently and effectively carried out,
achieving the objective, of why Tax credits should be granted.
This will be , one good way, to accelerate our infrastructure development.
Victor Ogiemwonyi is a retired Investment Banker and writes from Ikoyi, Lagos.
