• Friday, March 29, 2024
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Executive Order 007: Opportunity for Companies to boost earnings – Analysts

 Five implications of the newly signed Finance Bill

The Executive Order 007 would likely reduce liability of firms and bolster their profitability and returns to shareholders in form of dividend payment and share appreciation.

The Executive Order 007 titled “Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme” was signed into law last week, and aims to relieve government’s burden of funding critical road infrastructures and promote private sector investment in infrastructural projects

“Judging from the comment of the Chief Executives of the firms that were listed in the Executive Order, it seems to me like a win-win for all parties involved”, Rafiq Raji, Chief Economist at Macroafricanintel, told BusinessDay.

Gbolahan, Ologunro, research analyst at CSL Stockbrokers, explained that the tenure of the scheme allows companies spread the project cost to be recouped from the Government.

He further posited that “tax credits arising from expenditure on road projects will be used in offsetting their tax liability in a fiscal year, which ultimately reduced their tax expense, hence should support earnings”

Over the years, cement industry, unlike others, enjoys more tax relief because they are located in economically disadvantaged areas and as such tax authorities give them rebate in form of capital allowance.

Analysis of tax credit/expense of listed firms across six sectors revealed that only two entities – Lafarge Africa Plc and John Holt (the company) enjoyed tax credit in the first nine months of 2018.

Lafarge Africa Plc received tax credit worth N3.99 billion, while John Holt (company) got N20 million in form of tax credit, although the group paid N11 milion as tax expense.

Other players in the cement industry – Cement Company of Northern Nigerian (CCNN) and Dangote Cement Plc, which had enjoyed tax credit in the past, remitted N1.7 billion and N89.1 billion respectively as taxes in the period under focus.

No entity enjoyed tax credit in the consumer goods, oil & gas, financial services and construction/real estate sectors in the reviewed period.

The cumulative tax expense of 9 industrial goods covered in the analysis stood at N94.8 billion.

The aggregate tax expense of 7 oil & gas and 24 financial services firms captured in the analysis stood at N53.1 billion and N220.5 billion respectively.

“Companies might benchmark their expenditure on road projects against their tax liability for a fiscal year, in order to mitigate the impact of profit”, Gbolahan added.

The Executive order 007 is based on the demand for road projects by companies and other corporate sponsors, who are willing to deploy their own working capital and financial resources to fund road projects located in the major economic corridors of the country where they have significant businesses and operations.

Participating investors can use tax credits to reduce corporate taxes payable to the government until they recoup the value of their investment in road and bridges.

At the pilot phase, six companies – Dangote Industries Limited, Lafarge Africa Plc, Unilever Nigeria Plc, Flour Mills of Nigeria, Nigeria LNG Limited and China Road and Bridge Corporation Nigeria Limited, will be investing in 19 road projects totalling 794.4 km, which have been prioritized in 11 states across the six geo-political zones.