As Nigeria faces a revenue drought that has forced a lean expenditure, the Federal government will look to the infrastructure tax credits scheme to finance 2,000 kilometres of roads and bridges in 2023.
President Muhammadu Buhari while presenting the 2023 budget to the federal lawmakers a fortnight ago had hinted about the development, which is outside the N62.3 billion estimates for roads in the appropriation bill submitted to the National Assembly for scrutiny.
The infrastructure tax credit scheme is rooted in Executive Order 7 approved by Buhari on January 25, 2019. This order allows the private sector to invest in advance, tax liabilities in infrastructure development.
Between 2019 and the present date, some companies have been incentivised through the Road Infrastructure Tax Credit Scheme to construct over 1,500km of critical roads in key economic corridors.
However, going by the valuation of the Enugu – Onitsha road contract value, a civil engineer estimated the cost at about N5 trillion, saying all things being equal.
“The cost of financing 2,000-kilometre roads and bridges depending on the soil texture and topography of the environment is well above N5 trillion,” Engr. Oye Abidemi told InsideBusinessNG on phone.
When reminded that MTN is undertaking the construction of about 91 kilometres of Enugu – Onitsha dual road at an estimated cost of N202.88 billion, he insisted that N5 trillion could be enough barring environmental variations.
Recently the Minister of Works, Babatunde Fashola, announced that MTN Nigeria would take over and complete the Enugu – Onitsha expressway which is a 110 kilometre road which is being dualised.
“So, there is increased uptick for that policy (referring to the Tax Credit scheme) as there are two more investments under the tax credit initiative,” Fashola said on national television.
He continued: “These two include the MTN Nigeria Plc to take over and complete the Enugu – Onitsha expressway which is a 110 kilometres road which is being dualised.
“The outstanding works aggregate to over 91 kilometres. Those who use the road will notice that the Enugu-bound section has been largely completed but there is a lot of work to be done on the Onitsha section”.
“So, this policy is going to allow a steady and sustained stream of funding to completion by MTN Nigeria Plc and the amount approved is N202.887 billion to complete outstanding works of an aggregate of 91.9 kilometres on both sides,” said the Works Minister.
What’s Tax Credit?
Tax Credit is an alternative means of funding the architecture of growth, and an innovative way to engender economic growth by enabling corporates to deploy tax liabilities over a specific number of years to project financing, and in returnare given tax holidays for the number of years covered.
Putting it in simple terms, Pascal Odibo, the Group Country Director of Jeff & O’Brien says “Tax credit is like I may owe you on tax as a going concern, N40 billion to N50 billion. In place of the tax money you take in the next 10 or 20 years, let me use it and build critical assets,” Obido had explained in an interview with our correspondent.
In other words, the government may give five to ten years of tax holiday to companies with high tax liability, and in return, the companies will use the money they could have paid as tax to build some critical infrastructures that could aid economic development.
Tax Credit, therefore, is one of the various incentives for businesses to make investments in economic infrastructure development or operate in critical sectors of the economy where intervention is urgently required.
Taking a cue from developed economies, emerging economies are becoming increasingly conscious of the tax credit as the government’s search for alternative means of funding growth gets increasingly challenged due to dwindling earnings. But ambitious leaders that are hungry for the growth and development of their economies have deployed the tax credit initiative for development across sectors of the economy.
Recent Tax Credit Projects
Projects so far completed under the tax credit initiative included the 34km Apapa-Oworonshoki-Ojota expressway by the Dangote Group, also the 43km Obajana-Kabba road by the same Dangote Group and the 38km Bodo-Bonny road and bridges projects being undertaken by the Nigeria LNG Limited and scheduled for completion by the end of 2023.
Challenges With Tax Credit Initiative
Investment banker, Jerry Igwilo, pointed out that there is a capacity challenge because not many companies have huge tax liabilities substantial enough to undertake a buy-in of the tax credit financing model.
However, Igwilo who was the Chief Finance Officer of Hayden Petroleum Limited is of the view that the capacity issues could be addressed creatively, stressing there are other exciting ways to get more private sector buy-in of tax credit towards funding more infrastructure development needs.
“A modality could be worked out for a pool of firms, for instance, to jointly and collectively embark on funding road projects on tax credit deal without tears,” Igwilo had told our correspondent recently.
Similarly, Ndukwe Osoro Ajala, the Managing Director of Soul Mate Nigeria Limited commended the government on the tax credit scheme as a viable alternative but pointed out that it should not only be deployed for developing critical infrastructures but also for real sector expansion for productive employment interventions to reduce widespread unemployment in the country.
Speaking in a recent interview with our correspondent, theSoulmate boss said: “If there is an industry that has potential, you give them a tax credit. You can give them three, four, or ten years. Within the tax credit period, the sector operators will plough back the money they should have paid as tax into expanding their operations and employing more people,” Ndukwe advised.
He said that a serious and committed government at all levels can achieve much more with a tax credit scheme with the certainty of zero corruption and contract inflation, stressingthat it is the way to go.
