Economic analysts have picked holes in International Monetary Fund’s (IMF) position that the Federal government should halt tax holidays given to companies with pioneer status, saying the agency argument was borne out of lack of the understanding of the challenges in Nigeria’s business environment.
The IMF recently urged Nigerian government to stop giving out tax waivers because it is detrimental to the country’s revenue as it breeds corruption. It advised the government to revamp the current tax system in the country. The House of Representative had in June invited Nigerian Investment Promotion Commission (NIPC), Federal Inland Revenue Service (FIRS), selected companies and other stakeholders involved in the pioneer status grant process in a bid to investigative criteria for selecting the listed entities for tax holiday.
The government in August lifted the suspension on tax waivers for companies with pioneer status and introduced new guidelines as well as a revamped Pioneer list with the addition of 27 key industries and deletion of two industries at a biennial review of the list.
Dr. Okechukwu Enelamah, Minister of Industry, Trade and Investment, explained that the government decided to review the list of Pioneer industries and products after considering the economic realities of Nigeria and in pursuance of the Economic Recovery and Growth Plan (ERGP).
“Our environment is very harsh for business, so there is nothing wrong for government to encourage investment during tax holiday,” said Mr. Ambrose Oruche, Director, Corporate Affairs Manufacturers Association of Nigeria (MAN). “What the government is losing in company tax and withholding tax, it would gain from job creation, import dues and personal income tax.”
He argued that tax holiday is an incentive to investors to do business in the country despite the challenging operating environment.
Nigeria made a huge leap in World Bank’s Easing of Doing Business ranking released last week. The country moved 24 points to 145th position from 169 out of 190 countries in the World Bank’s Ease of Doing Business index for 2018. The improvement in the country standing was underpinned on the efforts the government has been to boost the ease of doing business in the country. Vice president Yemi Osinbajo while acting as President signed three executive orders in May to make Nigeria more conductive for business.
“It is part of the functions of IMF to give its views on the economic policies of country. It is now left for the country to take the advice or modify it,” noted Mr Johnson Chukwu, Managing Director, Cowry Asset Management Company Limited.
He posited that the country does not have to completely do away with tax holiday for companies with pioneer status, because of its benefits, but there, however, need for the modification of the current tax waivers system.
“The pioneer status that allows companies to enjoy tax holiday for additional investment should be modified. What we should have is a pioneer status that grant tax holiday for only initial capital investment in a sector that has been classified as pioneer,” Chukwu added.
The Pioneer Status Incentives Act of 2014 gave 5 years tax holiday to companies investing in an industry be categorised as pioneer but the revised guideline released in August has reduced the tax holiday period to 3 years.
ActionAid, an international non-governmental organization whose primary aim is to work against poverty and injustice worldwide, in its recent report titled: “Leaking Revenue – How a big tax break to European gas companies has cost Nigeria billions”, revealed that the country lost about $3.3billion due to tax waivers it gave to Nigeria Liquefied Natural Gas (NLNG) Limited.
Mrs. Funke Opeke, managing director, MainOne, a technology company reasoned the inclusion of software development and e-commerce in the pioneer status list is expected to stimulate entrepreneurial drive and emergence of new businesses (especially amongst the youth) and further assuage some of the challenges plaguing the industry.