By granting Pioneer Status, the Federal Government has waived $2.1 billion (N1.1 trillion) to 22 oil companies through tax holiday as at 2014.
These companies are operators in the marginal field segment of the Nigerian oil and gas industry, according to the latest report from the Nigerian Extractive Industries Transparency Initiative (NEITI).
Pioneer Status is a tax holiday incentive, designed by the Federal Government and backed by the law granted to targeted industries, products and services, designated as priority areas and growth drivers of the economy.
Some have argued that these are monies lost to government and to Nigerians in general, as these could have been ploughed back into the petroleum sector, particular the downstream infrastructure including refineries, depots, jetties, pipelines network and a host of others to improve products distribution in the country. NEITI, the revenue watchdog, also shares this view in its 2014 Oil and Gas report, which regarded the tax waivers, as a loss of revenue to the federation, which it noted, would hamper development projects in the economy.
The report stated that granting pioneer status to oil and gas companies has greatly undermined the optimal collection of revenue due from Petroleum Profit Tax (PPT).
The agency therefore, said that pioneer status should not be granted to any company in the oil and gas sector, unless it is evidently clear that the company is actually pioneering an aspect of the industry in the country.
It therefore, called for a “Regular review of the pioneer status to discover some of the companies granted tax waivers that had outgrown pioneer status.
“A coordinating desk should be established in the Ministry of Finance for all the agencies that process tax incentives while the final approval for tax waivers should be issued by the Minister of Finance,” it stated.
Speaking recently on the benefits of pioneer status, Seplat Petroleum Development Company Plc’s Chief Executive, Austin Avuru, noted that the grant of pioneer status made it possible for the company to boost oil and gas production, provide employment opportunities, impact on their communities and help grow the Nigerian economy.
At the presentation of report by the Tax Justice and Governance Platform, tagged: “Pioneer Status in Oil and Gas Industry; Is It Worth It?,” discussants argued that the pioneer status given to oil and gas companies was not worth it, noting that as long as these companies are making profit, they will be adding little or nothing to the development of the nation. The group urged the National Assembly to monitor the action of government agencies in granting tax incentive. “The FIRS should ensure that PS beneficiaries file tax returns annually with sanction imposed on defaulters. NIPC capacity in monitoring pioneer companies should be strengthened, while removing matured companies from the pioneer status list. Government should sign a Memorandum of Understanding (MOU) with marginal field operators on the establishment of guaranteed margins for the companies.”
Explaining the benefits of pioneer status to companies, the Nigerian Investment Promotion Council (NIPC) said in a document on “Investing in Nigeria,” that the grant of Pioneer Status to an industry is aimed at enabling the industry concerned to make a reasonable level of profit within its formative years.
It noted that the profit so made is expected to be ploughed back into the business.
The Agency stated: “Pioneer status is a tax holiday granted to qualified or (eligible) industries anywhere in the Federation and five-year tax holiday in respect of industries located in economically disadvantaged local government area of the Federation. At the moment, there is a list of 71 approved industries declared pioneer industries, which can benefit from tax holiday.
“To qualify, a joint venture company or a wholly foreign-owned company must have a minimum share capital of N10 million and incurred a capital expenditure of not less than N5million, whilst that of qualified indigenous company should not be less than N150,000.00. In addition, an application in respect of Pioneer Status must be submitted within one year the applicant’s company starts commercial production otherwise the application will be time-barred.”
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