Indigenous and marginal field operators have said that contrary to media reports, the five-year tax holiday granted them was not a fraudulent act but a policy by the Federal Government to empower them.

Kaduna

They noted that the gesture is meant to boost production and curtail security issues through increased employment and more investments into their corporate social responsibility projects.

Recall that reports said that oil and gas companies got about $4.5 million tax holidays they were not entitled to, noting that such privileges were should have been given to new projects rather than existing ones.

However, former President Goodluck Jonathan offered tax exemptions to some 20 local oil firms, who bought over marginal fields from some International Oil Companies, IOCs.

Accordingly, the Economic and Financial Crimes Commission, EFCC, was reported to be investigating the Ministry of Industry, Trade and Investment, and the Nigerian Investment Promotion Commission, NIPC, for the granting of such waivers to the oil companies.

A tax expert, Mr. Azeez Alatoye, noted that “Pioneer status is in the national tax policy and it entitles companies and firms to tax holidays as an incentive not only to oil and gas companies but to qualified industries anywhere in Nigeria.

“The grant of Pioneer Status to a company in Nigeria is aimed at enabling such company operating within the pioneer industry make significant capital expenditure and a reasonable level of return of profit within its formative years without having to pay companies tax.”

The enabling legislation as regards Pioneer Status in Nigeria is the Industrial Development (Income Tax Relief) Act 2004. The law provides that where the Nigerian government is of the opinion that any sector or industry in the economy is not being undertaken on a scale suitable to the economic advancement of Nigeria, or that it is in the public interest to encourage the further development or establishment or advancement of trade in such sector or industry, the President of Nigeria is authorised to publish in a Gazette, a list of such industries who qualify for pioneer status.

As a result, Alatoye argued that “Whoever is insinuating that the tax holiday is fraudulent is either being mischievous or not well-informed, and do not understand the policy.”

According to him, government would even benefit more from the exemptions, as the Petroleum Profit Tax, PPT, these firms are supposed to pay for in the first five years will not be taken out of the book and shared as dividends amongst company shareholders.

Rather, such funds will be invested to meet government’s aspirations to boost oil output from about 2.5 million barrels per day, mbpd, to 4mbpd in the near future, he added.

He further explained: “The money is in the book for the five year-period and not taken out. It is like government’s investment which when matured in near future will mean that government will collect 85 percent of 4mbpd instead of 2.5mbpd as PPT.

“Government is not losing any money. There is absolutely nothing like that. The money is used as investment to boost production output.”

In his opinion, most of the oil companies went through due process to acquire their pioneer status, adding that the processes of obtaining tax holiday cut across different agencies of the government like the Trade Ministry, NIPC, and Federal Inland Revenue Services, FIRS.

As such, he maintained that it will be difficult to say that any one company is defrauding the government through tax holidays with just one of the agencies.

“The provision of Section 10 of the Act, states that the tax relief period for a pioneer company shall commence from the production date of the company and shall continue for a period of three years in the first instance, and may be extended for a period of one year and thereafter for another one year, and followed by another one year or for a period of two years, subject to the satisfaction of Mr. President that certain requirements, such as rate of expansion, standard of efficiency, level of development of company, among others, are met,” Alatoye quoted.

With regard to the granting of the holidays en bloc rather than in installments as required by law, he defended that this is a matter of administrative convenience.

“The five-year straight tax holiday saves the industry, government and agency time, because there is nobody who has been granted a three year tax holiday that does not come back for the remaining two years. Thus, the agencies say they prefer to give the five year period and keep monitoring,” he said.