Nigeria: MPC Member Raises Concerns Over Unsustainability of Tax Credit Schemes

Mike Obadan, a member of Nigeria’s Monetary Policy Committee (MPC), has expressed his view that the country’s tax credit schemes are unsustainable. In a statement released by the Central Bank of Nigeria following the last MPC meeting, Obadan called on the government to reconsider its financing methods for capital projects, particularly infrastructure.

According to Obadan, the current financing approach, which involves borrowing and tax credit schemes, poses long-term challenges. He highlighted that the Tax Credit Scheme leads to a loss of tax revenue for the government. As an alternative, Obadan suggested that the government should entrust infrastructure financing to the Infrastructure Corporation of Nigeria (INFRACO). This shift would allow the government to avoid the loss of tax revenue while ensuring that infrastructure projects are developed for the benefit of the country and its citizens. Obadan also emphasized the need to expand the fiscal space for pro-poor spending, provide fiscal support to vulnerable segments of society affected by rising food and energy prices, and pursue fiscal consolidation to support monetary policy in controlling inflation and reducing debt accumulation.

Earlier this year, former Minister of Works and Housing, Babatunde Fashola, explained that the tax credit scheme encourages partnerships with private companies, enabling the government to invest in important projects that benefit its citizens.

Recent reports have indicated that the Federal Government forwent significant revenue through tax reliefs and concessions given to large companies. Between 2019 and 2021, tax incentives and duty waivers resulted in revenue forgone amounting to N16.76 trillion. These tax incentives were granted to companies under the pioneer status tax relief program.

The concerns raised by Obadan come as the Federal Government has budgeted N5.51 trillion for tax expenditures in 2023, as disclosed in the 2023 fiscal framework document. Tax expenditures, as defined by the Tax Foundation, refer to deviations from the “normal” tax code, which reduce the tax burden through exemptions, deductions, credits, or preferential rates.

As Nigeria evaluates its financing methods, addressing the sustainability of tax credit schemes and exploring alternative approaches will be crucial for ensuring the country’s long-term fiscal stability and economic growth.