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Tax incentive to Dangote and our failed Federal Govt

By Yinka Odumakin
I
F you put the Federal Government in charge of the Sahara desert, in five years, there  will be a shortage of sand”.

Milton Friedman must have had the Federal Government of Nigeria in mind when he penned the above words. Just like Obafemi Awolowo rightly warned against unitary Nigeria in his  book ‘Thoughts on The Nigerian Constitution’ in 1967, the Federal Government of Nigeria is now afflicted with ashes touch. Said Awo:  ‘Besides, it is not difficult to forecast that the work of government in Nigeria under a unitary constitution is bound to become unduly complex, inextricably tangled,extremely unwieldy and wasteful, and productive of disunity and discontent amongst the people. Unless we have veritable supermen at the helm of affairs,the administrative machinery would eventually disintegrate and break down under the crushing weight of ‘bureaucratic centralism’.

Bureaucratic centralism

Aliko Dangote

Today all the wonders achieved under regional governments but taken over by the Federal Government have been despoiled. The late Afro Beat King Fela Anikulapo Kuti had a befitting description for this destroyer when he sang: ‘Spoiler international just dey go,everything he must touch everything he must spoil’ .The destroyer anointing on the Federal Government in a unitary arrangement is boldly written on all our national infrastructure, assets and monuments today that is so difficult to find an area where we are excelling .

If  you took a trip by road from Accra to Lagos you will drive on smooth roads through Ghana,Togo and Benin . Your bumping ride starts from Seme Border where you conclude you are entering a republic of disorder if you are a visitor .

It is an admission of its failure that the Federal Government recently announced its decision  to hand over the Apapa to Oworonshoki end of the Lagos – Ibadan Expressway, a 35 kilometres long highway to the Dangote Group to rebuild using concrete, and as well getting a recompense in the form of 10-year tax holiday through the   Minister of Power, Works, and Housing, Mr. Babatunde Fashola (SAN)

“I am pleased to inform you that, we have just concluded an agreement using the tax incentive order to hand over the Apapa area comprising Creek Road, Liverpool Road, Marine Beach to Mile 2, Oshodi, Oworonshoki to the Lagos end of the Toll Gate on the Ibadan Expressway to Dangote Group for construction using concrete on Tuesday, 12th September 2017,” said Fashola.

The minister added that the design of the 35km stretch excluding the  about 7km, already done by the previous administration was being awaited to determine the cost and the scope of works .

While any reasonable mind would want that road done to ease the suffering users have been going through for years, this column is however worried about so many issues considering this deal bordering on integrity and Cardinal issues of federalism.

It must  first be pointed out that the whole idea of the Federal Government handing over such a road to a private firm in spite of humongous amount we have been budgeting for roads construction and maintenance over the years confirms the position that the present structure of Nigeria is anti-development and that the centre is over bloated with functions that should be left with the federating units and adequate derivative resources to execute them.The Vice-President of Nigeria, Prof. Yemi Osinbajo(SAN) recently announced that the Federal Government already spent N1.2 trillion on infrastructure but we have yet to see it commission one project!

There are fundamental questions that  this column believes the Ministry of Works must answer on this  opaque deal with Dangote:

1.How was ten-year incentive arrived  at when the costing for the project has yet to be done ?

  1. What is the current tax portfolio of Dangote Group and how much of it is being waived?
  2. Has the tax regime of the company been the same in the last 10 years and will remain the same for the next ten years?
  3. If the company spends more than the cost of the road and business goes bad for it in the next years, are we going to dip into the public till to pay?

5.If business booms for the company beyond the current projection,are we going to have a ‘Paris Club’ kind of refund?

  1. Currently, all what the Federal Government is entitled to in the taxes the Dangote Group will pay in the next ten years is 52%. Has the Federal government taken leave from the States and Local government councils that own the remaining 48%? Or is it a case of seizing what belongs to other tiers of government with Federal might?

Peters, Alan and Peter Fisher in  “The Failures of Economic Development Incentives.”  Journal of the American Planning Association had made very persuasive arguments against tax incentives even in a developed economy like America’s where best practices operate.

They argued that state and local tax incentives come at an enormous cost and that  while a comprehensive accounting of these programmes are impossible,  despite the enormous expenditures being made on these programmes, the evidence suggests that tax incentives are of little benefit to the states that offer them, and that they are actually a drag on national economic growth

The net economic impact of a tax incentive depends critically on how those funds would have otherwise been used.  If offering more tax incentives requires spending less on public education, congestion-relieving infrastructure projects, workforce development, police and fire protection, or high technology initiatives at public universities, the overall impact on a  country’s economy could actually be negative as the long-term economic benefits of education and infrastructure investments may not be as flashy as incentive-backed ribbon-cutting ceremonies.

Also,Alexander Klemm in ‘Causes, Benefits, and Risks of Business Tax Incentives ‘ a working paper for the International Monetary Fund , IMF, argued strongly against tax incentives.

Specific incentives

He opined that if there is a case in principle for tax incentives, this will not help a policy maker, unless the costs and benefits of practicable incentive schemes are known necessitating therefore a closer look at the implication of specific incentives. This is necessary, not only for the choice between different incentives, but also for the more general question about the usefulness of incentives per se, because even if there is a general case for tax incentives, one may decide against their use, if none of the available incentives can achieve the aims, or if their costs are too high.

The cost of tax incentives are wide-ranging and goes beyond any immediate revenue loss he argued further .Apart from revenue losses, they include distortions to the economy as a result of preferential treatment of investment qualifying for incentives, administrative costs from running and preventing fraudulent use of incentives schemes, and social costs of rent-seeking behaviour, including possibly an increase in corruption.

Even the pure revenue costs of incentives are difficult to quantify also according to this researcher .At one extrem, if, incentives apply only to investment that would not have taken place otherwise, the cost of direct revenue forgone would be nil. At the other extreme, if incentives are purely redundant and have no effect on investment then the entire tax revenue waived makes up the direct revenue cost. In practice, the true amount of direct revenue losses is likely to be between these two extremes. It is, however, also important to consider indirect effects. Hence, even if taxes are waived on an investment that would not have taken place without incentives, there may be indirect revenues losses, if that investment crowds out other, more highly taxable, investment. On the other hand, if there is an increase in aggregate investment and activity, there may be revenue gains from this, such as from additional employment taxes or taxes on inputs.

Major highways

The benefits of tax incentives are even harder to assess. Tax incentives are often used to achieve medium-term development objectives, which will be affected by many factors other than incentives. Hence, in the typical case of incentives, which are aimed at boosting investment and thus economic growth, it will be difficult to know what the growth performance in the absence of incentives would have been.

While waiting for further explanation from the Federal Government on this deal,it has to be pointed out that the quantification of what Dangote Group has contributed to the damage of our roads ,especially the particular road being handed to him ,through the indiscriminate parking of trailers would be an interesting read.

You travel on our major highways and see how these vehicles are left on the paved roads with reckless abandon.I saw the same Dangote trucks in Lome a few days ago and they were parked on a lane constructed off the main road.I shook my head!

The larger issue in all these however is that the whole idea of a Federal Government as we have it today has become anachronistic.Bureacratic centralism has made it useless and effective.

If you give water and garri to the Federal Government of Nigeria with cooking gas and a lighter,it will not succeed in making eba for you.

Must we continue to waste our lives under this structure?The reason we ask for restructuring is so that we leave the Federal Government with the functions it can cope  with and allow the federating units to run the rest according to the best practices of each civilisation.

 


Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.