As the nation’s shipping industry awaits the new High Court judgement on the case between the Nigerian Maritime Administration and Safety Agency (NIMASA) and the Nigerian Liquefied Natural Gas (NLNG), AMAKA ANAGOR-EWUZIE writes that time has come for all parties to start the journey towards removal of the controversial tax holiday to enable the Federal Government through the Apex Maritime Regulatory agency, to generate more revenue for funding of government budgets especially infrastructural projects for the development of Nigerian Maritime sector.
Exactly on Friday 29 March 2019, the Court of Appeal in Lagos set aside an earlier judgement of the Federal High Court, which exempted NLNG from the levies payable to the NIMASA under the NIMASA Act, Cabotage Act, Marine Environment (Sea Protection Levy) Regulations, and other laws of the federation.
The Appeal Court ruling was based on the fact that NIMASA was not given fair hearing at the High Court. Justice Mohammed Lawal Garba, who delivered the judgement, ordered that the case be sent back to the High Court for fresh trial under a different judge.
The effect of the ruling was that the Federal High Court is ordered to revert to the fundamental issue of fair hearing while NLNG continues to pay the statutory levies, pending another ruling by the lower court on the matter, said Lateef Fagbemi (SAN), NIMASA lead counsel.
Findings have shown that over two months after the Appeal Court judgement, the NLNG is yet to revert to the basis by continued payment of the statutory levies and charges to NIMASA.
Reacting to the ruling, Dakuku Peterside, director general of NIMASA, said the agency would continue to work closely with the judiciary in matters that need clarity and interpretation in order to realise its mandate of creating a robust maritime sector.
“This judgement has further shown that the judiciary is unbiased and remains a beacon of hope for Nigerians. NIMASA and NLNG are neither foes nor competitors. We are corporate cousins working together for the common good of our great country. Judgement like this, only serves to strengthen our institutions and ensure greater bonding,” Peterside said.
On his part, Andy Odeh, manager, Corporate Communication and Public Affairs, NLNG, said in a statement, that “NLNG as a good and responsible corporate citizen remains committed to conducting its business in accordance with the laws of the Federal Republic of Nigeria, and to abide with all applicable laws including those that confer exemptions on and grant fiscal incentives to businesses, as a way of sustaining their operations and growing the economy.”
Going down memory lane, it will be recalled that the LNG project started in 1988/1989 and at the time, the Federal Government not only recognised the company’s pioneer status within the provisions of the Industrial Development (Income Tax Relief) Act 1971, but also granted it a package of investment incentives including a 10-year tax holiday under the Nigeria LNG (Fiscal Incentives Guarantees and Assurances) Act Cap. N87 Laws of the Federation of Nigeria 2004 (“NLNG Act”) on certain conditions.
With the tax holiday, NLNG imported project cargo, and exported LNG from Nigeria, using vessels belonging to its wholly-owned subsidiary, Bonny Gas Transport Limited (BTG) and other chartered third party vessels.
The 10-year term was to elapse around 1998/1999 and at the end of the tax holiday, NIMASA wanted to begin the billing of its statutory levies under the NIMASA and Cabotage Acts on the vessels belonging to BTG and other chartered third party vessels.
To start, in 1997, the office of the Commander-in-Chief of the Nigerian Armed Forces wrote a letter dated August 20, 1997 through the Federal Ministry of Transport, and directed that NLNG comply with the extant law at the time, being the National Shipping Policy Act of 1987, which mandated it to pay the then two percent statutory levy on international inbound and outbound cargo as well as submit to routine inspection.
The dispute between NLNG and NIMASA started with the refusal of NLNG to pay three percent of the gross freight; two percent surcharge on Cabotage trade as contained in the Coastal and Inland Shipping (Cabotage) Act 2003; and to comply with the Marine Environment (Sea Protection Levy).
Still, in 2007 the Federal Ministry of Transport through a letter dated September 26, 2007 approved an action for NIMASA to commence the collection from NLNG.
Afterwards, NIMASA in 2010 commenced an action against NLNG, where it sought for an interpretation of relevant provisions of the NLNG (Fiscal Incentives, Guarantees and Assurances) Act, CAP N87, Laws of the Federation of Nigeria 1990, and the NIMASA Act of 2007. In January 2013, the action by NIMASA was withdrawn in a bid to amicably settle the dispute out of court.
Meanwhile, following the continued disregard of the provisions of the NIMASA Act and other relevant laws by the NLNG, in May 2013, NIMASA moved to enforce the provisions of the NIMASA Act and Cabotage Act as empowered under the Act, by demanding payment of the levies due from the NLNG, consequent upon which NLNG vessels were detained through the imposition of blockade for non-compliance.
Upon intervention by the Federal Government, through the office of the National Security Adviser (NSA), an agreement in principle was adopted, with NLNG undertaking to pay up all outstanding levies and comply with the requirements of the NIMASA Act 2007, the Cabotage Act 2003 and other relevant Regulations at the time.
Consequently, NLNG made a payment of $20 million dollars and the blockade was lifted.
Surprisingly, on the 18 June 2013, the Agency received a pre-action notice, from Counsel to NLNG, giving 30 days’ notice of their intention to commence legal action in accordance with Sections 53(2) of the NIMASA Act. This resulted in another blockade on 21 June 2013, during which various issues were canvassed in Court by the parties.
Meanwhile, there was a peace treaty by the parties under which the following were agreed: NLNG effects payment of all outstanding sums owed to the Agency and henceforth all its vessels, including FOB cargoes, will pay NIMASA levies as and when due, as well as other sums as provided under the NIMASA and Cabotage Acts, albeit under protest.
Also, NIMASA agreed to lift the detention orders placed on NLNG vessels and for as long as due payments are effected promptly, NLNG vessels will not be detained; NLNG will ensure that all outstanding FOB payments are made within four months from the date of the agreement failing which NLNG will assume responsibility for the payments.
The outstanding due payments were made by NLNG on the 6 July 2013 and the blockade was lifted on Saturday, 7 July 2013.
Based on the NLNG suit, the Federal High Court sometime in 2016 entered judgement in favour of NLNG. But not satisfied with the judgement, NIMASA immediately filed an appeal against the said judgement of the Federal High Court, which gave rise to the most recent ruling.
BusinessDay findings show that NLNG’s refusal to pay the accumulated three percent gross freight on international inbound and outbound cargoes and two percent Cabotage surcharge over the years have drastically reduced the revenue available to NIMASA to carry out its operations and perform its statutory responsibilities.
“The action has also compromised its ability to meet its core functions of maritime safety, security and shipping development. Therefore, I believed the Court should consider putting end to the tax holiday because NLNG has not only become successful but can help government to fund the nation’s over N9 trillion budget with payment of all the necessary taxes,” said a shipping expert, who does not want his name in the print.
According to the expert, the nation’s maritime sector, which is presently underdeveloped, is faced with serious infrastructural and security challenges that needed popular funding to be tackled, thus the need for NIMASA to block all revenue leakages.
“The NLNG position could set a negative precedent as other companies could refuse to pay the three percent of gross freight on their international inbound and outbound cargoes and two percent surcharge on their Cabotage cargo,” the expert added.
Of a truth, Nigeria is a country where close to 70 percent of its population live below the poverty line and where, according to the UNICEF, 10.5 million children are out of school.
Recently, government has shown keen interest on broadening the tax base with the aim of reducing its reliance on oil revenue and making taxation the source of funds for infrastructural development.
Therefore, government through the help of the legislature and the judiciary needs to put an end to signing away its tax revenues without any evidence to suggest that a careful cost-benefit analysis has been carried out to ascertain if the tax incentives are economically beneficial to Nigeria and Nigerians.
As a country that is desperately in need of more developmental funding, pundits believe that one of the lowest Human Development Index rankings in the world, and one of the lowest tax-to-GDP ratios, it has become critical that the three arms of government begin to re-evaluate the nation’s tax incentives framework.
This is owing to the fact that for every tax the government gives away, the country may be giving away jobs, healthcare, security, good roads and improved workers’ welfare, especially in the wake of N30,000 minimum wage, which could be funded with revenue realised from payment of taxes and levies to the government.
