.Dangote, BUA, MTN top beneficiaries of scheme

The Federal Government’s efforts to bridge the infrastructure gaps through the private sector under the tax credit scheme have gulped over N3.96 trillion in five years.

Nigeria faces a critical infrastructure deficit projected at over $3 trillion in the next 26 years with an average yearly budget of approximately $29 billion in the last 10 years.

Unfortunately, budgetary allocation for projects has repeatedly proven to be insufficient to meet road infrastructure demands. In 2024, for instance, the government allocated approximately N617.8 billion to the Federal Ministry of Works for its planned capital expenditure for the year.

To combat the shortfalls, the Federal Government has incentivised private sector participation in the provision and maintenance of key infrastructure across the country. The federal government said the country requires N438 trillion in investments in infrastructure over the next 10 years. Undoubtedly, the nation requires investments in road infrastructure, rail infrastructure, aviation, education and healthcare and about N43.8 trillion yearly investments to meet the yawning gap.

With inflation trending higher amid higher construction costs, there are concerns about the sustainability of the tax credit scheme, even as businesses struggle to sustain operations.

The depreciation in the value of the naira directly affects the prices of materials in the construction industry. Material components of infrastructure account for about 60 per cent of the total costs, aside from compensation and other associated costs. With the present economic situation, the downward trend of the value of the naira, cost of materials continues to escalate at a higher rate.

Specifically, quoted costs for construction may no longer be valid if naira depreciation continues unchecked. Until yesterday when the Federal Government intervened on issues bordering on the price of cement, the price of the product had risen to as high as N15,000 in some states from N6,500 quoted less than two weeks ago.

Already, the Federal Inland Revenue Service (FIRS) is concerned about the utilisation of revenue by agencies for road construction when there are other pressing needs and agencies saddled with construction and infrastructure development.

This prompted the Muhammadu Buhari administration to sign Executive Order 007 on “Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme 2019”, which established a 10-year scheme known as the Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme that encourages public-private partnership intervention in the construction/refurbishment of road infrastructure projects in the country.

The scheme focuses on leveraging private sector funding for the construction and refurbishment of eligible road infrastructure projects. The eligible roads are to be approved by the President on the recommendation of the Minister of Finance and published in the Official Gazette of the Federal Republic of Nigeria.

Under the scheme, the private participants of the scheme provide the funds for the construction/refurbishment projects and in exchange, the participants are entitled to recoup the funds provided as a credit against the Companies Income Tax to be paid. The various tax credit schemes created are projected to enable companies that are willing and able to spend their funds on the construction, provision and maintenance of various key infrastructures across the country, to recover their full construction costs as tax credits, over a period.

Participants in the scheme are entitled to tax credits against their future Companies Income Tax (CIT) to the tune of the total project cost incurred in the construction or refurbishment of the eligible road, while recovery of the approved total project costs is subject to the utilisation of a maximum yearly tax credit of 50 per cent of the total accessed CIT for each year of assessment.

In addition, the companies are entitled to a single non-taxable uplift at the prevailing Monetary Policy Rate (MPR) plus two per cent of the project cost, which is jointly referred to as the Road Infrastructure Tax Credit (RITC). Participants that engage in the construction or refurbishment of roads in areas designated by the President as “economically disadvantaged areas” are entitled to utilise a yearly tax credit that covers up to 100 per cent of the total accessed CIT for each year of assessment.

Besides, any unutilised credit within the year of assessment can be carried forward by a participant to subsequent tax years until the credit is fully utilised. The Road Infrastructure Tax Credit can be transferred in part or as a whole by a Participant to a new beneficiary upon notification of the transfer to the Committee. The Committee is mandated upon notification to effect the transfer in the records and issue a new Road Infrastructure Tax Credit (RITC) to the beneficiary of the transfer.

The Executive Order provides that the tax credit qualifies as an asset in the participant’s or beneficiary’s financial records. The tax credit is tradable on any stock exchange in which it is registered. However, the participant can also trade the tax credit, but only with the consent and approval of the Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme Management Committee.

Currently, some of the most prominent participants have embarked on various road schemes. They include Dangote Cement Plc (Apapa-Oworonshoki-Ojota road in Lagos and the Lokoja-Obajana-Kabba Road connecting Kogi and Kwara States), MTN (110km Enugu-Onitsha Road in Anambra State) and Transcorp Group (Oyinbo-Izuoma-Mirinwayi-Oklama-Afam Road).

Others are Access Bank (Oniru axis of VI-Lekki circulation road in Lagos State), GZI Industries (Umueme village road, Abia State and Mainstreet Energy, Malando-Garin Baka-Ngwaski Road) BUA (Bode-Saadu-Lafiagi Road, Eyinkorin road and bridge) and NLNG (Bodo-Bonny bridges and road).

Specifically, the Federal Executive Council (FEC) has approved a total of N3.956.8 trillion in five years for over eight companies that embarked on their projects. It includes the completion of the ongoing Enugu-Onitsha expressway by MTN Nigeria Plc, a telecommunication company, at the cost of N202.9 billion to complete the outstanding works of an aggregate of 91.9km on both sides. Originally, the road was 110km, which is being dualised.

The government also granted the NLNG Company an N20 billion tax waiver for the Bodo-Bonny road and bridge construction project in Rivers State. Under the terms of the PPP, NLNG provided 50 per cent part-funding for the project and the Federal Government funded the balance. The project cost is N120.681 billion, according to the Federal Inland Revenue Service (FIRS).

Under phase 1 of NNPC/FIRS Road Infrastructure Tax Credit Scheme, NNPC has received the nod of the FEC to construct 21 roads covering a total distance of 1,804.6 kilometres across the six geopolitical zones valued at a whopping sum of N621.2 billion, with nine of the selected projects in North-central, three in North-east, two in North-west, two in South-east, three in South-south, and two in South-west. Also approved phase II of the scheme to fund 44 critical road infrastructures to the tune of N1.96 trillion and totaling about N2.6 trillion.

The 35-kilometre-long Apapa-Oshodi expressway project, which began in 2018, is part of a bargain between the company and government to enjoy a 10-year tax rebate that accrues to N72.9 billion. Dangote Cement Plc was awarded a tax credit certificate worth N21.6 billion to construct the Apapa-Oworonshoki-Ojota road in Lagos while the tax credit certificate for the Lokoja-Obajana-Kabba expressway is valued at ₦10.221 billion.

Also, as part of the infrastructure project, Dangote provided funds for the two federal roads and subcontracted them to Hi-Tech and Julius Berger construction companies. The group has completed another 26km Itori-Ibese road executed with concrete.

BUA Group has also received approval for N415 billion tax credits that comprise N115 billion 132km Kano-Kazaure-Kongolam highway under the same scheme linking Kano, Jigawa and Katsina States and another four major roads worth N330 billion. It includes Kosubosu- Kaiama-Bode Saadu highway (130km); Bacita-Shonga-Lafiagi highway (83km); Eyenkorin-Afon-Offa-Odo Ottin highway (49km); and Okuta-Bukuro Road which connects to Benin Republic (32km).

The projects upon completion will transform road transportation and the movement of goods and people – most especially agricultural produce, across Kwara, neighbouring States, and the Benin Republic, with huge potential for economic development and food security.

In its analysis of the scheme, KPMG said the outcome of these initiatives has not necessarily matched the demands for road Infrastructure. It is, indeed, arguable that the drawbacks of the past initiatives have contributed to their limited success. For instance, issues around full cost recovery, administrative bottlenecks, ease of participation, and funding have had a deterrent effect on taxpayers who would otherwise have participated in a Public Private Partnerships (PPP) road project. In theory, the RITC should address most of these limitations and encourage private sector participation in road development.

“With emphasis placed on ease of participation in the scheme, the extent and timing of capital recovery and alternative methods for extracting the value of tax credits, it is expected that large corporates, particularly those whose operations are currently hindered by access to motorable roads required for evacuation of their products, will be encouraged to channel capital towards road development and refurbishment – both as corporate social responsibility and also to eventually recover their cost through tax credits.”

According to the firm, the executive order presents a golden opportunity for manufacturing companies, particularly those operating around industrial clusters, hubs and trade zones to mobilise and direct capital toward the refurbishment of those roads, including feeder roads and highways, which are most critical to the movement of inventory and products, shortening supply lead times and optimising the manufacturing supply chain.

The President of the Commonwealth Association of Surveying and Land Economy (CASLE), Mr Segun Ajanlekoko told The Guardian that the scheme has not been seen to be profoundly impactful. “The nation’s infrastructure needs are phenomenal and require more than a tax credit to achieve meaningful results.

“It will require a highly specialised development fund warehoused by a specialised bank that will offer single-digit interest and a long gestation period to achieve the desired result. No existing bank can offer that, unfortunately,” he said.

He said for the existing scheme to be seen to be successful, there must be a setup that involves three key professionals to do independent appraisals such as civil/ structural engineers to monitor the quality and adherence to specification; independent cost management/ cost controllers outfit to give an assessment, evaluate and monitor the cost of construction, as well as independent tax experts to adjudicate on the tax claims.

Ajanlekoko disclosed that the challenge is that the contractual arrangement that set up the scheme excluded the independent advisors, adding that impact was not usually widespread because it was packaged by the concessionaire’s team within the presidency, possibly with the civil servants and the PPP agency.

Asked if such arrangement should be extended to the real estate sector to enhance the delivery of more houses, Ajanlekoko said the only plausible way out for increased housing delivery is through housing design and construction methods, use of construction materials local or foreign and easy access to land, as well as a more sympathetic bank that will guarantee a single digit interest rate.

He added that Nigeria’s housing needs are phenomenal; it requires a more dynamic and proactive intervention than what presently exists.

The President of the Nigerian Institute of Quantity Surveyors (NIQS), Kene Nzekwe, who stated that the scheme has not helped in bridging the infrastructure gap, wants professionals to manage the execution of the projects to ensure transparency and openness, as well as acceptance of the costs.

Nzekwe expects the government to utilise professionals like the NIQS to advise on cost elements and stakeholders’ engagements on such schemes. He said that without sustainable infrastructure, the country would not develop and achieve economic growth.

He said the Federal Government should provide details on how it arrived at the cost of the projects. “Our interest is that the scarce resources should be judiciously managed. We have attempted to be part of the scheme, but nobody is giving us listening ears,” Nzekwe added.

The Chief Executive Officer, Ove Arup & Partners Nigeria Limited, Kunle Adebajo, an engineer, said through the scheme, several major road projects that were ab initio in deplorable states across the nation have been improved and funded in the last five years.

He said professionals in the sector have also benefited since the private companies make payments to the respective contractors promptly. Thus, employment opportunities for skilled, semi-skilled, and unskilled workers (directly and indirectly) have been generated.

According to Adebajo, the challenges are the delays experienced in the issuance of approvals and obtaining the tax credit certificate from FIRS due to the bureaucratic bottlenecks of the FG and its statutory agencies.

He said the Federal government should consider extending the same funding approach to other infrastructure sectors such as real estate construction, airport construction and upgrades, seaports, railway, and waterway transportation.

“We need to utilise this and all other avenues available so that all hands are on deck to drastically reduce the huge infrastructure deficit that is hindering the country from reaching its full potential,” he said.