The Nation Newspaper

Tag: Tax

  • Petroleum tax

    Petroleum tax

    • Fashola is right in insisting that this belongs to the states

    The day was Tuesday, February 19. The venue was the Nigerian Institute of International Affairs (NIIA), Victoria Island, Lagos. The occasion was the 80th birthday anniversary of foremost legal luminary, prominent Lagosian, statesman and Federal Commissioner of Works and Housing in the General Yakubu Gowon regime, Alhaji Femi Okunnu.

    It was certainly a most apposite opportunity for the Governor of Lagos State, Mr.Babatunde Raji Fashola (SAN), who delivered a public lecture at the event, to reflect on critical issues affecting the practice of federalism in the country, and the place of Lagos in the Nigerian federation. In his lecture titled “The essence of patriot and federalist”, Governor Fashola gave notice of his administration’s determination to resist any plan by the Federal Government to tax the purchase of petrol at pump price as provided for in the Federal Road Maintenance Agency (FERMA) Act.

    Describing the collection of any such levy by the Federal Government as unconstitutional, the governor argued, and rightly so, that the proposed levy is a consumption tax, which ought to be collected by the state within which the commodity is consumed. Governor Fashola buttressed his argument by pointing out that Lagos State has 592 state roads, 8,402 local government roads and 25 federal roads, with the state having to bear the burden of the attendant heavy vehicular tonnage on this vast road network.

    Surely, his argument that any petroleum tax at pump price must be rightly collected by the state to maintain the roads is unimpeachable. We fully identify with the governor’s strong denunciation of the country’s defective fiscal federalism when he declared that “The Federal Government is already collecting royalties on extraction of crude oil, taxing the profits of oil companies at about 30 per cent, taking 52.68 percent of the national revenues and leaving 36 states and 774 local governments with 26.72 per cent and 20.60 per cent, respectively. We will not lie at ease and watch a further encroachment”.

    This skewed fiscal arrangement in favour of the centre is one reason why most states are unviable and rely substantially on monthly allocation from the centre. Yet, the states and local governments are where the vast majority of Nigerians who must be provided with infrastructure, jobs and social services live. The implication of the current situation is that the entire country is virtually dependent on oil revenues of the Niger Delta to the detriment of that region. This is because the Federal Government monopolises most sources of revenue, including solid minerals with which many states are richly blessed and from which they should benefit.

    It is noteworthy, as Governor Fashola said, that Lagos State is currently in court over the Value Added Tax (VAT), another consumption tax that is centrally collected rather than left to each state in accordance with the principles of derivation and federalism. According to the governor: “The same applies to the attempt to encroach on the power of states to raise revenues in their territories from lotteries, hotel licensing and other areas of residual authority of the state … Beyond the registration of hotel as a company from which the Federal Government has collected revenues through the Corporate Affairs Commission, what more service does it render to hotels in the various states of the federation?”

    As the country’s most populous state as well as commercial and industrial nerve-centre, Lagos contributes substantial revenues to the national treasury but gets only a pittance in return to meet its obligations. But the struggle to remedy this warped fiscal structure cannot be left to Lagos alone. All states will benefit from a more just fiscal arrangement, which will also help curb the current obscene profligacy at the centre.

  • Tax environment and film industry

    THE tax environment can affect the activities of individuals and corporate bodies either positively or negatively. Filmmakers and relevant stakeholders should begin to align goals and strategies to grow the sector with particular intention to claim their own share of the package of tax incentives the government has granted to other sectors of the local economy.

    In developed countries, the type of tax regime in place influences business planning and investment decisions. In the business environment, the tax environment has impact on employment, output, income and economic growth rate. It is imperative to note that regulators and stakeholders have critical roles to play.

    The film industry has attracted global attention. Our films are viewed all over Africa, the Caribbean, Asia and continental America. As such, the government may not be unwilling to grant special tax incentives to further enhance the growth of the film industry, thereby create job opportunities and develop a vibrant film industry.

    The Federal Government is making efforts to ensure that the tax environment is investment friendly, and has such provided a number of tax incentives to specific sectors in the economy to stimulate growth and development.

    Globally, an investor friendly tax environment will attract foreign investment, while the flip side will discourage foreign investment. The tax incentives available within a nation’s tax environment constitute part of the investment opportunities for local and foreign investors to build on.

    The following already exist in the Nigerian law:

    “The creation of a film industry development fund to be listed in the 5th schedule of the CITA Cap C 21, LFN 2004 as amended

    “Investment tax credit

    “Deduction of reserve made out profit for research and development

    “Tax exemption on income earned from abroad brought into Nigeria

    ” Low company tax of 20 per cent for small companies in the preferred sectors as per 1996 fiscal policy analysis

    “Pioneer status

    “Low tax treaty concession rate of 7.5 per cent for foreign investors

    “Accelerated capital allowance scheme

    “Loss relief

    “Repatriation of net earnings outside Nigeria by foreign investors

    “Allowable deduction of cost of film production.

    In the real sense the Film Industry need a better understanding of the tax law and how it applies to the industry. Notably the only tax incentive that the Film Industry acknowledges is the one granted under Decree 32 of 1996 which provides that 100 per cent of the foreign income earned from abroad by authors, playwrights, artistes, musicians, and sportsmen etc is exempted from tax provided that the income is repatriated into Nigeria in foreign currencies through a domiciliary account with a Nigerian bank.

    There is no gainsaying that the foreign investment in this sector will go up with some tax incentives applied to it.

    Following the tax incentive technical committee made up of FIRS and NFC to work out a package of incentives to be presented to the Federal Government, the situation is bound to change with the unprecedented growth, which the industry has seen in the last two decades, particularly the tremendous achievement of the last five years.

    The following are the recommendation of the technical committee for inclusion into the Nigerian tax law:

    “Exemption of 20 per cent of income of film-makers; provided such income will be put into reserve to be used in further acquisition of film equipment

    “Low rate of tax of 20 per cent for small companies in the film industry based on classification of the film industry as a preferred sector in the Nigerian economy

    “Rebate on import duties on importation of film equipment and materials by local and foreign film production companies

    “Preferential loan facilities to be made available to investors to aid development in the film sector

    “Insertion of ‘film practitioners’ in the list of economic actors mentioned in S19(1) of PITA 2004 Third schedule item 30

    “Audio-visual film materials imported into Nigeria to be exempted from VAT

    “Ten per cent levy from exhibition and theatre receipts should be ploughed into the proposed film development fund.”

    The film industry has attracted global attention third only to America’s Hollywood and India’s Bollywood, making it an investors delight.With this level of achievement, the government, no doubt, will be willing to grant tax incentives to spur further growth in this very important money spinning sector of the economy. A similar incentive has been granted to the tourist industry which is one closely linked with the film industry.

    Also, very important is the need for enterprises in the film industry to register with the relevant tax authorities for tax purposes and file their income tax returns and pay their taxes as and when due to encourage government to grant these incentives. It must be noted that the Federal Inland Revenue Service is doing a lot to encourage different sectors of the economy to optimise value and potential, this will invariably increase voluntary tax compliance. The ball is now in the court of filmmakers to take advantage of this opportunity to grow this sector.

     

  • ‘Our plan is to celebrate tax payers’

    What has been the profile of the
    state’s internally Generated Rev-
    enue (IGR), especially since Governor Rauf Aregbesola took over?
    I handle three portfolios in one. I handle the economic planning, budget and finance. That gives me a helicopter view of where we are, where we are going and how we are navigating. Yes, when the Governor came in, the IGR of this state was slightly above N300 million. It was hovering between N320 million. The first thing he did was to automate the whole process of IGR. When you talk of IGR, it is a gamut of processes. We have the collection processing of it and the banking sides. So, he appointed a consultant to do similar things that was done in Lagos and some other states. They couldn’t just pull-off the ground until the cabinet came in and in November, we actually went live in terms of automation and we insisted that tax payers must pay directly to the bank, and what happened was that the revenue jumped from N320 million to over N600 million.
    But that is not where it should stop in terms of ensuring that you improve your IGR. So, we are now at the second phase. This phase is more difficult because that’s where we are going to do bootstrapping, looking at leakages and ensuring that revenues from agricultural and forestry are not fretting away. Thereafter, we would begin to look at formal sector, beyond formal sector, you look beyond payee and you will be surprised that since the creation of this state, it has never gone to audit books of businesses and enterprises that are deducting taxes from their employees and are supposed to be remitting to government. All these are areas of improvement that Mr. Governor had to come in.
    Already, Mr Governor has come up with a law that is currently in the House of Assembly on revenue administration. What the revenue administration does is to re-orientate internal revenue service and refocus it and actually challenge the officials and put their career in their hands in terms of training, re-orientation, operational flows to run their operations.

    Do you have any incentive in place to encourage tax compliance and what is the ratio of current capital spending?
    I think from the tax, we discovered that we have a lot of high networth individuals who have country homes here and come around on weekends. And what we have done is talk to them, encourage them and try to also sensitise them and let them also know the programmes of the Governor in terms of development. We believe that we will have some of them walking in voluntarily to pay their taxes. At least, since I became Commissioner of Finance, I have seen more than ten people, high networth individuals that have walked in to say I am a citizen of Osun, I earn dividend income, revenues and I want to pay my taxes. So, our plan is to celebrate them we want to launch our electronic tax card, which enables you to carry your tax payment like a wallet. So, you must have read in the news that we were not going to tax people unnecessarily. Prior to this administration, we discovered that the people of Osun State have been practically abandoned.
    There was no social overhead capital expenditure; there is no emergency project and programme in the key sectors of the state economy. So, we knew if we start taxing them from day one, would be unnecessary burden for the Osun people. That is why the government came up with intervention schemes like ORIP, OYES. In ORIP, we have farmers that we provide micro credit, we gave them land. They pay credit to the landowners in Unit trusts, such as a trustee scheme. They pay the landowners and part of that is actually ploughed back by the government. These are ingenious indirect ways of taxes to ensure that these individuals that benefit from government intervention also pay back by fulfilling their civic responsibilities. So, that is being worked out and for those of them that are in cooperative societies, we engage them at that level rather than running around the streets in Gestapo or uncivilised manner. Basically, that is what we have been doing to improve the revenue.

    What is the ratio of the recurrent to capital spending?
    You know the Federal Government is doing 70 recurrent to 30 capitals, but we here in Osun we are doing 56 capital and 44 recurrent. But we intend to do 70 capital and 30 recurrent. We are trying to push our recurrent expenditure down in what is called financial concurrent checklist to monitor it.

    Why are you raising capital from the bond market?
    You will agree with me that bond is what we should use for developmental programme.
    We are not happy with roads that lead to our capital city. We are not just building roads; all our roads on capital projects have bankable documents, which tell you about the social-economic importance of that road. It tells you about the visibility of that road. Osogbo-Iwo road, for example, you will be surprised that that is the most economically viable corridor. We must do that road too and we also talk about our flagship investment project which is the OUP—a logistic center, which is also we are trying to build, not just a logistic center but a commercial centre where you have commercial activities and exchange of good and values, and that will be an exchange point for our farm produce going to Lagos via rail. That will also be an exchange point for finished goods coming to Osogbo.
    We believe if we can reactivate it through that flagship investment activity, we will be better off. Fortunately, the Federal Government has renovated the railway lines which are working now and we have signed a MoU with them which will lead to a full-fledged private-public partnership arrangement. My colleague, Mr Alagbala is already talking to investors in the Middle East that are bringing in funds into that OUP. We will provide the physical infrastructure but they will provide the commercial infrastructure and they will run it. In other to do that, we must build roads. We have awarded a dual carriageway to that centre and some of the funding will come from the bond. I will not go for commercial loan for such a huge capital projects, I will rather do bond. We are also looking for concessionary loan that are long term from the World Bank, China EXIM bank but the fact remains that borrowing from a foreign market is at risk of unstable foreign exchange. That is why we have chosen to go to capital market. We are currently with the SEC and in a matter of weeks, it will be concluded.

    What is the level of this year’s budget implementation?
    We are above 60 per cent for 2012 budget. You know in government, it is cash-base accounting.

    What is the debt profile of the state?
    There so much talk about N18.3 billion. It was actually N21 billion. N18.3 billion was a single loan that was drawn in a very dramatic manner in the sense that it was supposed to be for a project. The construction period for that project was three years and 24 months. So, you expect a phased drawing of the facility. Banks will give you an availability period which is supposed to be at least equal to the project period, which means the loan will be available for drawing in phases but the former governor Olagunsoye Oyinlola just drew it once and the state had a debt overhang. That is why the N18 billion is being so much talked about because the purpose was so wrong. Why borrowing a short-term of two to three years to build six stadia at the same time. So, that was a mismatch, and why should he borrow at the twilight of his tenure? Even with the Court of Appeal judgement, they would have left in six months, thereby creating problem for the incoming administration. So, what Mr Governor did was to extinguish some of the short-term loan and he brought it down to N8.6 billion.

    What are the incentives being mapped out for investors in the state?
    Some were mentioned during the investment summit. We talked about availability of electricity in Osun because of the regional control centre that we have. Currently, there are Federal Government projects to improve electricity and we are already talking to the federal government that they should let us fund it to make it quicker. We know they will make a refund for that. Two key projects of the Federal Government that are pursuing are the Osogbo/Ede transmission line. It is supposed to be sub-station but has been slow. We can fund it hoping for a refund from the FG, that will make electricity available to feed our Export Free Trade Zone, which the former administration said it spent N1.5 billion on but could not find any structure on it. That will be a key industrial centre. We also promise our investors water and Mr Governor has said he will go beyond that by providing the roads. We are not just saying we wanted to do investment summit. We are going to define our comparative advantage.
    Also, there will be easier access to land for investors. Our policy is a one-stop shop. Even in the Ministry of Land, the whole idea is that we need to make land buying easier. Ideally, one should be able to get a Certificate of Occupancy out within 90 days. But to fast-track it, as the owner, you must have all your documents ready and submitted to the surveyor-general’s office. In fast-tracking, it comes with extra cost. Every property owner will shortly have titles and every private land and properties will be captured through a programme. For an agricultural land, there is an innovation that we want to pride our self as pioneering. A bill is before the state’s House of Assembly that will look into ways to ensure investors get lands without having problem with the community.