• Tuesday, June 25, 2024
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BusinessDay

Tax credit and infrastructure deficit: Matters arising

Impact investing key to bridging Nigeria’s infrastructure deficit

On January 25, 2019, Nigeria’s President, Muhammadu Buhari signed Executive Order No. 007 which was on “Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme 2019”. Inter alia, the scheme sets up a 10-year scheme that will encourage Public-Private-Partnership intervention in the construction and rehabilitation of roads.

Undoubtedly, Nigeria is in dire need of good infrastructure. This is evident in most of the infrastructure rankings the country featured in. According to the Africa Composite Infrastructure Development Ranking 2018 to 2020, Nigeria, Africa’s biggest economy, was ranked 22nd in 2018, and 24th each in 2019 and 2020 respectively. On the Electricity Index, Nigeria was ranked 29th in 2018, 2019 and 2020 respectively. On the Transport Index, Nigeria was ranked 28th in 2018, and 29th each in 2019 and 2020, out of the 54 countries in Africa.

The infrastructure deficit is huge in the sense that a whopping $3 trillion will be needed to close the infrastructure gap in a country that expends about 95 percent of its earnings on debt servicing

Further, on ICT Index, Nigeria was ranked 22nd in 2018, 20th in 2019 and 22nd in 2020. Also, on Water Supply and Sanitation Index, Nigeria was ranked 29th in 2018, 30th each in 2019 and 2020, out of the 54 countries in Africa. It should be noted that no meaningful development will take place in the absence of critical features like electricity supply, ICT, good transport network and water supply. And unfortunately, in all of these critical infrastructures, Nigeria ranked poorly.

The infrastructure deficit is huge in the sense that a whopping $3 trillion will be needed to close the infrastructure gap in a country that expends about 95 percent of its earnings on debt servicing.

The absence of adequate infrastructure is already telling on the Nigerian economy in that as an agrarian economy, a high percentage of farm produce get rotten between the farm gate and the markets due to lack of a good road network. According to the World Bank, Nigeria loses and wastes 40 percent of its food production and the portion lost and wasted each year is equal to the produce generated from 31 percent of the total cultivable landmass.

Against this backdrop, the signing of the tax credit scheme received a thunderous welcome from many stakeholders. This means its introduction was overdue. Thus far, few companies have shown interest, even as some of these companies have different executed projects to convince doubtful Nigerians that the scheme is workable.

Read also: Experts call for increased women participation in tax policy making, administration

The companies that have keyed into this scheme include the Dangote Group, Transcorp Group, BUA Group, NLNG, Mainstreet Energy, GZI Industries, MTN, and Access Bank. For instance, Dangote cement paid N78.14 billion as tax in 2020. And as at the end of the nine months ended September 2021, the same company made a provision of N127.24 billion as the income tax expense. MTN Nigeria as of nine months ended September 2021, made N101 billion as income tax expense, which was higher than N67.36 billion made as income tax expense as of September 2020. Access Bank paid N13.2 billion as income tax as of September 2021. The import of these figures is that companies are willing to help bridge the nation’s infrastructure deficit.

While the move above is commendable, the absence of strong institutions in Nigeria means sooner or later, the scheme will be abused. This is why we want the system that governs the selection of projects and the monitoring of the tax credit to be devoid of political colouration. This, however, is a tall order in a setting like ours where underhand tactics continue to define what passes for governance.

The composition of the management of the tax credit scheme still comprises the top government functionaries who believe in bureaucracy. This could slow down the identification of projects for the president’s approval since it is after the president’s consent that the execution of the project will start. Another interesting observation is that after the identification of projects, there are no timelines for when the projects will be approved by the president.

A way out of this is for the executive arm of government to simplify the procedures involved in project identification and approval. The Minister of Finance, as well as the Minister of Works and Housing, should be able to have the President’s authorisation to approve some projects whose costs fall within certain benchmarks. In other words, it is not all the projects involved that should receive the president’s blessing before execution.

All the committee members are government’s employees, who may still pander to the tune of government. In this regard, professional bodies like the Nigerian Society of Engineers (NSE), Institute of Chartered Accountants of Nigeria (ICAN) and the Nigerian Bar Association (NBA) should be involved to monitor project execution so that at the end, Nigerians will get value for the money spent through this scheme. It is time for the weak-kneed giant of Africa to come into its own in the area of infrastructural profile and stature. And one way of ensuring this is to pay more than passing attention to the issues raised in this piece.