Details published on the Medium Term Expenditure Framework (MTEF) for 2023 to 2025 have shown that the country has a planned tax expenditure figure of N21.815 trillion between 2020-2023.
Tax expenditures are government losses from Tax exclusions, exemptions, deductions, Credits, deferrals and preferential tax rates.
Details on the MTEF document of the government, shows that in 2020, N5.664 trillion was earmarked as Tax expenditure and in 2021, N5.554 Trillion. The projected figure for 2022 stands at N5.348 trillion and 2023 N5.248 Trillion.
The exemption for 2021 comprises VAT reliefs granted on imports, Waivers and Concessions on import duties, Surcharges among others.
While total customs exemption in 2021 stood at N2.296 trillion, the revenue actually made by the Customs was N1.340 Trillion, meaning that customs gave more exemptions than it made in actual revenue. In the same year, a total of N216.88 billion was granted as Import duty waiver with fuel and lubricants taking 46% of the total waiver granted.
Some sections relevant to Tax exemptions as captured in the finance Act (2021), states that, a company shall be exempted from Tax if the company is a statutory or registered friendly society, profits of cooperative societies, dividends received from small companies in the manufacturing sector in the first five years of their operations among others.
The Value Added Tax Act also made provisions for goods that are VAT exempt, some of them are; all Medical and Pharmaceutical products, Basic food items, Books and Educational materials. All exports are also VAT tax exempted; tractors, ploughs, agricultural equipment and equipment purchased for Agricultural purposes are tax exempt. Based on the section 38 of the Finance Act 2019, Section 15 of the VAT Act exempts a vatable person whose taxable supplies has not attained a value equivalent to N25 million
Other compositions of Nigeria’s tax expenditures are tax credit given to organisations. For instance, in 2021, it was reported that Nigeria gave Dangote Cement a tax credit of $54 million(N22.32 billion as at then) in exchange for construction of Apapa-Oworonshoki-Ojota road.
In 2021, 16 companies were also granted tax waivers under the Industrial Development Income Tax Act, the government justified its action on contribution of the companies’ to the Nation’s economy.
The Act encourages that companies’ who seek pioneer status (which means they carry out activities that have not been carried out in the country before or economic activities not carried out at a suitable scale in the country) be given some incentives, which may include tax reliefs.
There are however growing concerns on the ability of the country to sustain its high tax expenditures, the Nigerian Senate expressed reservations on the country’s decision to grant about N6 trillion tax waivers in 2023, lamenting that the tax waiver program was being abused. The Lawmakers were quoted as stating that the ‘wastages and leakages’ caused by such waivers or tax expenditures must be blocked.
Experts have also opined that tax incentives and expenditures have either been grossly abused or have been inappropriately administered, noting that the country should not give out so much when it is heavily borrowing to meet fiscal demands.
The concerns might resonate especially because of Nigeria’s interest in improving tax revenues as a way of meeting its growing financial needs.