TAX WAIVERS AND THE ECONOMY

 Indiscriminate waivers are killing local initiatives and fuelling corruption

The Lagos Chamber of Commerce and Industry (LCCI) is advising the federal government against the plan to remove the waivers, incentives and exemptions granted some large enterprises on grounds of Pioneer Status Incentives. “Leaving rates at their levels will not lead to a loss of revenue,” according to the LCCI Director General, Chinyere Almona. We understand the position of the LCCI, but we do not agree with it. For years, there have been serious questions about indiscriminate tax waivers that have contributed to our national economic malaise. 

In the Finance Bill 2022 passed by the National Assembly, the federal government had sought amendments to key provisions in the Capital Gains Tax Act under which most of these controversial tax waivers, incentives, and exemptions (revenues not coming to government) are captured. And with the impending removal of fuel subsidy that would quite naturally impact negatively on the welfare of the people, it cannot continue with these ideas. Granted that waivers and exemptions are sometimes necessary to provide incentives for businesses to expand, to generate jobs and grow the economy. But many studies also reveal that most waivers that have been granted in our country amount to leaving money on the table and they incentivise collusion between government officials and their business cronies.

A review of the effectiveness of existing waivers (not just pioneer status) will thus be necessary for any government that is interested in increasing revenue. The businesses benefiting from these waivers will always protest such a review and often threaten economic collapse. That is also normal. Some incentives may be necessary and useful. To that extent, the federal government should conduct its own studies and run models. For example, tax credit for infrastructure is a good initiative. We have seen some roads from that initiative. But there have also been reports over several years that the pioneer policy is being abused. Many who do not pioneer anything can access it just by adding another line to existing factories.

Ordinarily, there is nothing wrong with waiver which is one of the instruments used by government all over the world to achieve specific set goals and objectives in line with their economic aspirations. However, the way and manner it is granted in Nigeria has over the years raised fundamental questions about transparency and accountability. In fact, the use of waiver has been bastardised to the extent that successive administrations in the country have turned it into an avenue for monumental graft as top government officials connive with some unscrupulous elements in the private sector to corner billions of naira into their pockets and that of cronies.

Today, no one can give a specific figure on the exact amount Nigeria has lost to the indiscriminate granting of waiver, because the practice is as rampant as it is uncoordinated since it is done at the instance of the president and ministers. In 2011, the House of Representatives revealed that not less than 183 undertakings and individuals were at the period beneficiaries of tax waivers, exemptions and concessions running into several billions of naira that should ordinarily accrue to the federation account. The list is today far longer.

There is therefore no better time than now to plug all the loopholes the granting of waiver has been subjected to over the years. The federal government should get serious and stop paying lip service to growing the local economy. The regime of indiscriminate waivers, incentives and exemptions is killing local initiatives and fuelling corruption. We support efforts by the federal government to review the policy, using the newly signed legislation.