A predictable tax environment and consistent tax policy administration are essential for encouraging business growth, attracting foreign investment, and boosting national economic development. The 2017 Nigerian National Tax Policy recognises the underlying importance of providing tax incentives to specific sectors or for specific activities with the aim of stimulating or retaining investment and discourages the abrupt termination or discontinuance of such incentives, unless as specified under the applicable legal framework. Introduced in 2019 through the Presidential Executive Order 007, the Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme (RITCS or "the Scheme") aims to promote public-private partnerships in road infrastructure by granting private investors tax credits against their Company Income Tax (CIT) liabilities. Despite the success recorded under the Scheme, the Federal Inland Revenue Service (FIRS) has recently called for the abolition of the Scheme arguing that the Scheme is unlawful as it imposes additional obligations on the FIRS whose core mandate is to collect and remit taxes to the Federation Account.
This article critically examines the RITCS, its impact in bridging the road infrastructure deficit in Nigeria and the importance of consistency in the fiscal policies of the Federal Government in the area of tax administration.
Critical Appraisal of the Impact of RITCS on Road Infrastructure Development in Nigeria
As explained in our earlier publication in November 20223, the RITC Scheme is a strategic initiative introduced by the former President Muhammadu Buhari administration to tackle the ongoing road infrastructure development challenges by encouraging private sector led funding required for the execution of eligible road construction and rehabilitation projects in Nigeria. In return for funding road construction and refurbishment of eligible roads, private entities are granted tax credits which can be utilised to off-set their future CIT liability in the relevant fiscal year in which the project cost was incurred, until it is fully utilised subject to a limitation of 50% of the CIT payable by participating entities (with the exception of projects carried out on certain eligible roads in economically disadvantaged areas). Additionally, the Scheme permits an uplift, calculated at the Central Bank of Nigeria's (CBN) Monetary Policy Rate plus two percent of the project cost which is tax deductible.
It is important to note that the RITCS Order provides that the Scheme is to be operational for a ten-year period without a provision for extension upon its expiry.
Since its launch in 2019, the RITC Scheme has seen significant participation from major companies in Nigeria investing reportedly around N97.4 billion over four years which has facilitated the rehabilitation and reconstruction of 33 vital road networks nationwide. Furthermore, in 2021, the Federal Executive Council (FEC) sanctioned N621.2 billion for the then Nigerian National Petroleum Corporation (NNPC) to reconstruct 21 Federal roads across all six geopolitical zones. This underscores the importance of the Scheme in addressing the current infrastructural deficit in the road networks across Nigeria.
The Consequences of Abrupt Policy Changes- The Scheme in Sight
The Scheme has recently come under scrutiny, with calls for its abolition by some stakeholders such as the FIRS. Some have argued that the Scheme is unconstitutional as the funding of the road projects via the tax credit ought to be collected by the FIRS and remitted into the Consolidated Revenue Fund ("CRF") as revenue for the Federation that is the Federal, State and Local Governments. Whilst this argument might seem plausible and there have been several attempts by State Governments to sue the Federal Government on these issues8, it is noteworthy that a distinction must be made with respect to the overarching objective of the Scheme and the operationalisation of the Scheme. While there may be debates as to the modalities for the disbursement of funds for the Scheme, it is our opinion that the overarching objective of the Scheme is not inconsistent with the 1999 Constitution as the Scheme is designed to attract investment in road infrastructural projects through tax credits granted to private sector entities that provide such funding.
While there is yet to be a clear direction on the fate of the RITCS, the immediate aftermath of abolishing RITCS could prove unfavourable to the Nigerian economy as ongoing infrastructure projects relying on the Scheme's incentives may face abrupt delay in execution or outright abandonment due to funding uncertainties. This could trigger a ripple effect, disrupting the economy and jeopardising crucial development initiatives nationwide.
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