Vanguard News Nigeria

GE-ARCO face-off: Who protects Nigerian firms from predators?

By Andy Ogbori

NIGERIAN firms, particularly those operating in the oil and gas sector, have had a long history of being marginalised by their foreign multinational counterparts, despite the much-vaunted Federal Government’s “local content” policy of encouraging indigenous firms to participate in the nation’s cash-cow sector.

In August 2014, many news media, including Vanguard, reported the running battles between the Italian-owned Nigerian Agip Oil Company, NAOC, and American industrial giant, General Electric Corporation, GE, on one side, and an indigenous firm, Arco Engineering Company, on the other, in which the foreign companies tried every trick in the books to muscle out the local firm from juicy gas plant maintenance contracts in the Niger Delta duly awarded Arco by the Nigerian National Petroleum Corporation, NNPC.

File: Oil Pipe

In pursuit of common interests, Agip colluded with GE to attempt taking the maintenance contracts off Arco, including aggressively poaching the company’s highly-qualified technical staff.

Another incident which demonstrates foreign multinationals’ unbending determination not to allow local firms to take root in our oil industry involves the same GE versus Arco, according to a report by The Cable online newspaper fully backed up with relevant documents.

There is strong documentary evidence that over the period of 2006 and 2015, GE, which retained the services of Arco for the supply of indigenous personnel, allegedly unilaterally and systematically deducted 10 per cent Withholding Tax (instead of the five per cent permitted by our tax laws) from the local firm’s invoices worth well over three million dollars, ostensibly for remittance to the Federal Inland Revenue Service, FIRS. GE claimed it took that action because of the “technical” nature of the contract.

Arco insisted that the contract, which was for the supply of local personnel to GE was not a “technical service” (which attracts 10 per cent withholding tax) as it did not involve technology transfer as stipulated by law.

An email dated 21st June 2017 from one Fasilat Ransome-Kuti whom GE later described as a senior manager from renowned audit firm, Price Waterhouse Coopers, PWC, advised Arco to clarify from the FIRS adding: “We request you seek clarification from the tax policy unit of FIRS in Abuja as only such clarification will suffice and give us comfort”. GE also argued that failure on its part to sustain the 10 percent  Withholding tax remittance to FIRS could attract penalty against the company for noncompliance.

In response to Arco’s 11th July 2017 letter seeking clarification, FIRS through its Executive Chairman, Mr.Tunde Fowler, affirmed that withholding for personnel contracts was 5 per cent but that withholding tax on Rent for the company’s office in Port Harcourt to be deducted by Arco and remitted to FIRS was 10 per cent. Fowler added in his letter: “The above rates are in line with the provision of Sections 78, 79, 80 and 81 of the Companies Income Tax Act, 2004 as amended. Paragraph 2 of the Schedule to the Companies Income Tax (Rates, etc, of Tax Deducted at Source (Withholding Tax) Regulations and Paragraph 6 of FIRS Information Circular No. 200/02 of February, 2006”.

In response to Fowler’s clarification, GE said it had asked PWC to confirm the information from FIRS and also to find out how the excess will be handled since it had already (allegedly) been remitted to the FIRS. GE added: “It is our view that the FIRS should either refund the excess withholding tax to Arco or apply it as a credit against Arco’s future liability”. Up till now, neither GE nor FIRS has said or done anything new about the illegal tax deductions.

The main questions that beg for urgent answers are whether truly GE remitted the 10 per cent it deducted from Arco’s invoice to the FIRS? If so, how much is it? Why should GE, in the first place, deduct 10 per cent knowing that the contract on the hiring of personnel does not come under “technical” matters since it does not involve technology transfer?

It is important for the FIRS to inform Arco and the public as to whether GE actually remitted 10 per cent to it and if so, will the tax authority make a refund to Arco or treat it, as GE had opined in its letter, tax advance? On the other hand, if GE did not remit that fund to the FIRS, what steps will the tax authority or any other law enforcement agency take against a company deducting excess tax from another company in the name of the FIRS and failing to remit it?

It will interest the Nigerian public to know the proactive action that France took in June when it became obvious that GE would not keep its pledge to provide 1,000 new jobs that it promised after buying Alstom in 2014.

The Labour minister, Muriel Penicaud, threatened that if GE did not meet the job pledge by the end of this year, the company may be fined up to $34million at the equivalent of €50,000 for every missed target.

This same GE promised to provide thousands of jobs in Tinapa, Calabar, but that promise remains just that – a promise.

The perennial tendency of Nigerian officials to foot-drag in protecting the interests of indigenous companies struggling to find their footing in the critical sections of our economy, especially our oil sector, is very disheartening. This syndrome is mortgaging the commanding heights of our economy and Nigerians are increasingly being made to be mere spectators.

Most of the “local content” companies are abandoned to tackle these international corporate giants. It is akin to Gulliver versus Lilliputian. Many government policies, like the “local content” policy in the oil sector, routinely fail because of the unwillingness of the Nigerian authorities to protect our people struggling against the manipulations of well-rooted foreign behemoths within our economy.

I hope FIRS will do the needful and dispense justice to whom it is due, and if anyone has violated the laws of the land they must pay adequate price for it.

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