Following the International Monetary Fund (IMF)’s stance that the Federal Government should stop granting tax waivers and exemptions to firms under the pioneer status incentive, the organised private sector (OPS) has insisted that the status-quo should remain. TAIWO HASSAN Reports
With Nigeria’s exit from recession, the need to consolidate on the Federal Government’s economic reform has become paramount even as the World Bank and International Monetary Fund (IMF) register their interest in Nigeria’s affair.
The reason for this may not be unconnected with the global financial institutions’ well known efforts to ensure countries tailor their reform agenda alongside their recommendations.
However, some school of thought believe that most of these recommendations are out to ruin the Third World economies.
Introduction of PSI
In a bid to revamp the country’s ailing economy, the Federal Government through its Economic and Recovery Growth Rate Plan introduced a tax holiday known as pioneer status incentive (PSI) for firms.
Specifically, the Federal Executive Council (FEC) approved additional 27 industries to enjoy the PSI.
The intention of the government was to use the PSI to encourage and attract investments into critical sectors of the economy.
It is also meant to attract foreign direct investment into the country, boost local production and provide employment for the citizens.
The PSI exempts companies, which meet certain requirements from the payment of company income tax for an initial period of three years and subject to additional one to two years renewal.
Speaking at an industry forum in Lagos recently, the Senior Resident Representative and Mission Chief for Nigeria, Africa Department, IMF, Amine Mati, advised the Federal Government to urgently revisit tax holidays and exemptions given to companies.
He specifically urged Nigeria to implement a reform that will see it phase out tax holidays and exemptions eroding company income tax base.
The IMF representative explained that successive administrations had granted controversial tax holidays and waivers, which were described as forms of corruption.
According to Mati, there is also need for Nigerian policymakers to move beyond voluntary compliance measures in tax matters in order to mobilise non-oil revenue and increase the fiscal space.
The Washington-based Fund also asked the Federal Government to increase taxes imposed on tobacco and alcohol, emphasising the need for socially responsible fiscal adjustment based on revenue mobilisation.
As part of the support for President Muhammadu Buhari led government, the private sector group rebuffed the IMF’s call, saying, globally, tax incentives are used to drive the growth of economies.
Speaking in a chat with New Telegraph, President, Manufacturers Association of Nigeria (MAN), Chief Frank Udemba Jacobs, noted that the tax holidays given to the industrial firms by the government was a pacesetter meant to fast-track economic growth in the country.
He said MAN supported the government in creating attractive incentives for investors who are engaging in the processing of the abundant agricultural and mineral resources from primary produce to secondary or intermediate products.
This would go a long way in attracting potential and current manufacturers into the use of local raw material inputs.
Jacobs said: “The resource-based industrialisation policy/local sourcing of raw materials, which MAN has been canvassing for sometimes now, involves the utilisation of the abundant natural resources in manufacturing the products that the country needs.
“This is a more sustainable and enduring form of industrialisation, compared with the import-dependent industrialisation, which has been practiced in Nigeria for long.”
Similarly, the President of the Abuja Chamber of Commerce and Industry (ACCI), Tony Ejinkeonye, disagreed with the call by the IMF that the Federal Government should stop granting tax waivers and exemptions to companies.
He said globally, tax incentives had proved to be a catalyst for industrialisation.
He said for a country that is seeking to boost industrial development and improve the ease of doing business, tax waivers are necessary to encourage the flow of foreign direct investment into the country.
He described the call by the IMF as unacceptable, pointing out that a lot of businesses in Nigeria needed the incentives to be competitive owing to the harsh economic climate.
He said: “Globally, tax incentives are used to drive the growth of economies. Tax incentives are given to start-ups, the Micro, Small and Medium-scale Enterprises, manufacturers, exporters and any other sector that is the focus of government.
“Tax incentives are used to encourage and drive the FDIs. Incentives can come in various forms that are geared at giving encouragement to any sector of focus of the economy.
“It is therefore unacceptable to our economy and country that the IMF is asking the Federal Government to stop such incentives.
“What we need is efficiency of tax implementation. Seventy per cent of businesses in Nigeria are under paying taxes while many small businesses are over paying in multiple taxes.
“A good number of businesses are not even paying at all. What we therefore need is efficiency in the tax system and not removal of incentives.”
OPS believes that the IMF’s position on the removal of the PSI and other tax holiday incentives is another way of trying to impose neo-colonisation on Nigeria’s economy.
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