Banks, Financial Institutions Highest Beneficiaries As Nigeria Lost Over N4.2trn To Tax Waivers—-Investigation

The Federal Government lost over N4.2trn to waivers on Companies Income Tax and Value Added Tax in the 2019 fiscal period, investigations have revealed.

The amount was lost as a result of tax waivers granted to companies under the Industrial Development Income Tax Act as well as implementation of other policy measures aimed at stimulating investments into the economy.

The Pioneer status is an incentive from the Federal Government which exempts companies from basically income tax.

The incentive is also known as tax holiday and it is generally regarded as an industrial measure aimed at stimulating investments into the economy.

This means that the companies with pioneer status do not have to pay tax for a certain period of time so as to allow them to get established. This tax exemption can be full or partial.

The products or companies suitable for this pioneer status are industries or products that do not already exist in the country; the existing industry do not meet the required needs or fulfill expected goals; and any industry or product for which there is a favourable prospect of development.

Figures from the Ministry of Finance, Budget and National Planning showed that the country lost huge revenue from VAT and CIT waivers.

According to the Ministry of Finance, revenue foregone from CIT incentives and concessions in 2019 was estimated at N1.1trn; while tax revenue collected under CIT was put at N1.6trn.

In the same vein, the total revenue forgone from VAT policy choices and compliance gaps is estimated at over N3.1trn.

According to the ministry, the revenue lost could still be more as the waivers granted under Customs Duty, Excises, Petroleum Production Tax, Personal Income Tax and concessions under the Oil and Gas Zones legislation has yet to be computed.

Further analysis of the figures from the ministry of finance showed that banks and financial institutions accounted for 94 percent of the estimated total CIT forgone.

Findings showed that deductions claimed by the financial sector based on interest on securities was N192.31bn, while that claimed on interest on loan for agriculture, fabrication and cottage industry was put at N3.33trn.

In the same vein, deductibles claimed under Section 23(1) of the Companies Income Tax Act N59.41bn, Research and development was put at N113.73bn

It was also learnt that Conglomerates, Information and Communication companies also benefited from the concession.

Similarly, Oil Producing entities also benefitted significant from the Petroleum Profit Tax Act concessions but the tax foregone had yet to be fully computed

The Ministry also put CIT forgone under Nigerian Export Processing Zones Authority and PSI schemes at N8.49bn and N10.49bn, respectively.

The Federal Inland Revenue Service had last Friday raised the alarm about the systemic abuse of the pioneer incentive scheme instituted by the Federal Government.

It said the development had led to tax revenue leakages for the three tiers of government.

The FIRS noted that it would block the tax revenue leakages in order to generate more revenue for the three tiers of government.

The Coordinating Director, Tax Operations Group, FIRS, Mr Femi Oluwaniyi, who decried the indiscriminate tax waivers and incentives granted to undeserving companies, noted that the development had impacted negatively on revenue generation.

Oluwaniyi disclosed that the FIRS has discovered that pioneer status certificates had been issued to companies that were not pioneers of their fields in the real sense, hence undeserving of such status.

He stated that this development has led to loss of considerable tax revenue to the three tiers of government.

However, the FIRS hinted that it was auditing its findings with a view to pressing for the cancellation of pioneer certificates issued to undeserving companies in violation of the law.

The FIRS stated that pioneer status granted outside the law would not enjoy tax relief regardless of the certificate issued to them.

The Service also stated that owners of such certificates would be requested to regularize their tax positions otherwise sanctions shall apply in accordance with the law.