Market News

BY  Festus Akanbi

Following the Federal Executive Council’s approval for a number of key infrastructural projects to be undertaken by the Dangote Group and four other companies in place of their tax obligations under the Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme, some economic watchers at the weekend said the current state of infrastructure in Nigeria will compel more companies to key into the scheme.

MTN and BUA Group are some of the private sector companies that won the bid to construct federal roads as part of the Road Infrastructure Tax Credit Scheme. Other participating private sector firms are Access Bank, Transcorp Group, GZI Industries, Mainstreet Energy, and Dangote Group.

Reacting to the development in separate interviews with our correspondent, economic affairs commentators expected other companies to join the fray, a development they said promises to give the nation’s infrastructure a facelift. They, however, admitted that the more the number of companies that embrace the scheme, the less the revenue that will accrue to the nation’s revenue-generating agency, the Federal Inland Revenue Service at the end of the year.

Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, pointed out that “We should expect more companies to key into this scheme because, in this way, they will have the control over cashflow rather than pay out cash; they can then begin to give value to the society and all of that and they can pick the assets they want to finance.

“For example, if I have a road in front of my office and instead of paying tax, they say, go and construct the road, I will rather construct the road so that my car can come into my office and my customers can be happy, instead of paying tax and waiting for the Lagos State Government or federal government to come and construct the road.

I also believe, for example, that a company like Cocacola will like to build their road near their factory, the Indorama, the petrochemical can say, let’s do that bridge so that our products can get to the market.”

Rewane, however, said the Federal Inland Revenue cannot lose sleep over the anticipated shortfall in revenue, saying “Having a revenue target is not as important as ensuring the money raised is used for value. “Let’s say, for the sake of argument, we raised N1billion and we cannot account for it, but instead of N1billion cash, we now have N1billion in assets in roads or bridges, in the end, money comes in and it goes out, so whether there is value for money is the question that we have to be asking. The revenue target is important but it is not as important as the optimisation of the revenue when it is collected,” Rewane stated.

The Chairman of FIRS, Mr. Mohammed Nami could not be reached for his response as his phone was switched off, while calls and WhatsApp messages to the Director, in charge of communication of the agency, Alhaji Abdullahi Ismaila were not acknowledged.

Meanwhile, corroborating Rewane’s optimism, Group Managing Director, Cowrie Asset Management, Mr. Johnson Chukwu believed the Infrastructural Tax Credit scheme will enable companies to tackle the problem of infrastructural deficit in their domains.

According to him, “Some companies are located where there are major infrastructural deficit. Such companies, if they have tax liabilities and large profitability, will certainly want to join this scheme. So, I believe several companies will want to join. It could be companies joining principally to address infrastructural deficits within their areas of operation. Of course, it will impact negatively on government’s revenue but in terms of the benefits to the society, I believe the benefits outweigh whatever shortfall they are going to have in terms of tax revenue.” Chukwu explained further that currently, the government is not finding it easy to meet its capital expenditure, hence the necessity of the private sector intervention.

He said, “The issue is that tax revenue of the government should go to government’s capital expenditure. As it stands today, the government does not have enough money to cover its current expenditure. So, what we have seen is that we are having a severe deficit in terms of the infrastructural bill. This infrastructural tax credit is compelling government to spend revenue that it would have ordinarily spent on recurrent expenditure on capital expenditure.”

On the anticipated shortfall in revenue from the government side, Chukwu explained that the gains of the scheme will make whatever shortfall recorded in revenue pale to insignificance at the end of the day.

He said, “What you will have is there is going to be a shortfall in revenue from the government side, but infrastructure would have been built and that infrastructure, from the medium to long term will catalyse further economic development because they will reduce the cost of doing business in the country as we will have better infrastructure and that will ultimately help us to grow the government revenue as more companies begin to operate in the country and become profitable and viable.” In his contribution, Executive Director, Cordros Capital Limited, Mr. Femi Ademola, said the initiatives have different appeals to different people.

According to him, “The federal government initiatives on tax credit for companies who embark on the development of road infrastructure appears like a good initiative. “It is a supposed cheaper alternative to direct borrowing to fund infrastructure projects. It is a loan in the sense that it has to be repaid through tax credit and thus reduces the potential future tax revenue but is expected to be cheaper because the repayments would not include the usual bureaucratic processes that result in cost variations.

“The initiative has different appeals to the different parties involved. For the government, it is the ability to execute more developmental projects within a short period. For the corporates, they have a combination of branding advantage and cash flow management. In addition, the cement manufacturers are also able to record improved demand (sales) for their products used in constructing the roads; hence they benefit both explicitly (financially) and implicitly (brand improvement).

“However, the success of this initiative and any other one for that matter will depend significantly on the transparency of the process and the honesty of the parties involved. The scheme in itself is well set up and barring any corrupt tendencies on the part of any of the parties, it should work effectively.”

When confronted with the reservations in certain quarters that corruption could affect the success of the initiative, Ademola said, “No doubt, corruption can mar the success of the initiative but I wouldn’t predict a doom as its outcome despite the possibility of corruption.

“I believe that potential disruptions to the process would have been factored into its structure hence I am optimistic that the initiative will work. The experience with the Oworonshoki-Apapa Road which is being constructed under such scheme would have helped to make future initiatives work better.”

The Road Infrastructure Tax Credit Scheme enables companies with high tax profiles to construct roads in a negotiated agreement with the federal government to provide the infrastructure instead of taxes. MTN has been saddled with the responsibility of constructing the 110km Enugu-Onitsha road in Anambra State in exchange for tax credits.

The Transcorp Group is to construct the Oyinbo-Izuoma-Mirinwayi-Oklama-Afam Road; Access Bank will fix the 5km Oniru axis of VI-Lekki circulation road in Lagos State while GZI Industries is also to reconstruct Umueme village road, Abia State.

In Niger State, Mainstreet Energy is saddled with the construction of Malando-Garin Baka-Ngwaski Road and the rehabilitation of Mokwa-Nasarawa Road.

The BUA Group will construct Bode-Saadu-Lafiagi road; Eyinkorin road and bridge and Okura Road which links the Benin Republic with Osun State. The Dangote Group will construct a deep seaport road through Epe to Sagamu-Beni; Kaaba-Ekiti boundary. President Muhammadu Buhari, on January 25, 2019, signed Executive Order No. 007 on Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme.

The scheme is for 10 years from its commencement date. The Scheme is a public-private partnership intervention that enables the federal government to leverage private sector capital and efficiency for the construction, refurbishment, and maintenance of critical road infrastructure in key economic areas in Nigeria. Participation in the Scheme is open to every Nigerian company, acting on its own or in concert with other Nigerian companies, and institutional investors wishing to construct or refurbish any road identified and designated by the federal government as an “eligible road” under the Scheme. Participants will be entitled to utilize the total cost, incurred in the construction or refurbishment of an eligible road as a Tax Credit against their future Companies Income Tax (CIT) liability until full cost recovery is achieved.