Do tax incentive policies work?

Author:Adepoju, Paul
Position:FEATURE: TAX POLICY

In the wake of the Panama Papers, there is renewed sensitivity around the issue of tax avoidance. This includes closer scrutiny of tax incentive policies in major economies such as Nigeria.

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Tax avoidance is turning out to be one of 2016s key issues. Since the Panama Papers were released in April, the spotlight has been directed towards the opaque world of legally not paying one's taxes. Many wealthy and influential individuals, as well as companies, in dozens of countries were implicated. This included some notable names from Africa.

Following the revelations, the issue of tax avoidance has gained renewed urgency in the eyes of many. In Nigeria, Africa's largest economy, this has included greater scrutiny of government tax incentives to encourage private sector investment in key industries.

In May 2016, Aliko Dangote, arguably Africa's best known businessman, was the subject of discussion after it was reported that his company, the Dangote Group, will not have to pay 30% income tax to the Nigerian government for a number of years following the approval of his proposal to repair the Obajana-Kabba-Ilorin road, a federal highway.

There was widespread anger that a government suffering from reduced oil revenues should allow the country's richest individual such generous tax relief.

Onye Nkuzi, a social media commentator captured the mood by saying: "Give Dangote tax breaks. Insist on N20m [$64,464] for drone operators. The Nigerian government hates the startup innovator."

But Bisi Alagbe, a civil servant, argued that it was a mutually beneficial decision. "Smart decision. Win, win, win proposition. Dangote wins, Nigeria wins, Nigerians win. This is what happens when people think creatively," Alagbe said.

The tax break, the government argues, is given for good reasons. In his explanation of the development, Babatunde Fashola, Nigeria's minister of power, works and housing, said the arrangement was not only for Dangote, but for as many companies and organisations willing to make pre-approved investment in state-owned infrastructure.

"This is not a Dangote-only issue. There's an existing tax policy that states that any individual or investments in publicly owned infrastructure is entitled to make claims on remission of income tax obligations. So this is not a Dangote-targeted policy, it's an economy-targeted policy. Anyone can take advantage of this provision. It is like a credit advance to the government; the road or...

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