The real cost & benefits of Nigerian Government’s 10-year tax incentives to Dangote Group

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The Government has three of such deals with the AG Dangote and NLNG, and would account for millions of Naira in tax revenue.

The Nigerian government has reviewed the tax-incentive to a subsidiary of Dangote Group, AG Dangote Construction from five years to 10 years. This is for various construction projects undertaken on behalf of the government.

This deal was disclosed by the country’s Minister of Power, Works and HousingMr Babatunde Fashola over the weekend while speaking at a Construction Conference in Lagos.

“The five-year limit on that tax order to a 10-year period to sustain private investment in road infrastructure, because it is a long-term asset,” says the minister.

The road holds huge economic potentials but has been a terrible state for over a decade.

The road holds huge economic potentials but has been a terrible state for over a decade. (Pulse.ng)

On the legality of the deal, the Companies Income Tax (Exemption of Profit) Order 2012 allows for such provision.

“…where a company provides an infrastructure of a public nature (which it can also enjoy for its own benefit), 30% of the cost of the infrastructure will be granted as a tax-deductible expense…”

The latest deal has triggered a debate about the appropriateness of these deal, especially the tax incentives. Many hold the opinion that such move would assist closing the huge infrastructural gap in the country.

Others stated that it is a way of further expanding the wealth and business empire of the Africa’s richest man.

The Gains and Losses to the Government and the People

For the Federal Government, the gains are in the area of saving the cost infrastructural development, one which it does not have. This thus create a more conducive business environment to drive economic growth.

The Apapa port is the biggest port in Nigeria and having a good road would positively impact the economy. Completion of the road may open-up some revenue channels that were hidden by the bad state of the roads.

A sample of Concrete road construction by AG Dangote Construction in Nigeria.A sample of Concrete road construction by AG Dangote Construction in Nigeria. (sundayadelajablog)

Use of concrete in road construction would increase the length of life of these important business routes. Also, it would save a lot of funds that would be needed for remedial work as common with roads built with asphalt and bitumen.

This would help the release of money for other infrastructural developments. as decline in government’s oil revenue persists.

For the cost that accompany these deals, the government may have to deal with a reduction in its tax revenue as tax incentivized deals with big firms like Dangote, would mean a huge revenue loss to the government.

This is something the government needs dearly during this era of low oil revenue.

Low revenue profile would adversely affect the regional governments that rely on allocation from the Federal Government. Thus, worsen already precarious social-economic conditions in these states.

This fear was also expressed by the Action Aid and Tax Justice in 2015 about the spate of tax incentives in Nigeria and other West Africa region.

In recent time, there has been a huge revenue loss to massive tax incentives in the country.In recent time, there has been a huge revenue loss to massive tax incentives in the country. (Techpoint.ng)

“Our research shows that three countries alone – Ghana, Nigeria and Senegal – are losing up to $5.8 billion a year. If the rest of ECOWAS lost revenues at similar percentages of their GDP, total revenue losses would amount to $9.6 billion a year [due to tax incentives offered to foreign companies].” – says Action Aid and Tax Justice Network Africa

Many have also stated that business incentives such as this have proved to be less effective and wasteful as they tend to create more wealth for the few individuals and increase the income gap in the country.

If the revenue situation does not improve, the federal and state governments may be forced to introduce more road taxes on most of these roads. Thus, becoming double taxation for the people and finally eroding any welfare improvement gained from such projects.

These are some of the costs to the government which would be extended to the people in form of welfare loss.

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