Corporate Tax

Nigeria flies flag for corporate tax self-harm

Nigerian President Muhammadu Buhari speaks during a press conference during a visit to Pretoria, South Africa, October 3, 2019.

LONDON, July 20 (Reuters Breakingviews) – In Nigeria, only one thing is certain of death and taxes. Growing international pressure to tackle climate change means Africa’s largest economy must wean itself from its unhealthy reliance on oil revenues. Ad hoc targeting of foreign companies is a lazy way of finding alternative sources of income.

The latest victim of Abuja’s scattergun approach to corporate taxation is South Africa’s MultiChoice (MCGJ.J). The Nigerian Tax Collection Agency says the pay-TV business owes $ 4.4 billion in unpaid fees, nearly a third more than the company’s value on the Johannesburg Stock Exchange. Fortunately for the MultiChoice shareholders, only a fraction of the initial demand is likely to have to be paid.

Judging by the company’s 7% drop in price, investors face a fine of $ 260 million, 94% less than Nigeria charges. Even that could be an overestimation. A $ 2 billion tax bill filed against South African cell phone giant MTN (MTNJ.J) in 2019 was literally nullified a year later. And the $ 8 billion the central bank asked the same telecommunications company for supposedly illegally repatriated dividends turned into a $ 53 million slap in the face.

Such missteps damage the credibility of the Nigerian authorities. Businesses and individuals, of course, assume that tax bills are either negotiable or avoidable. It also does not improve the credentials of the most populous nation in Africa as an investment destination. At the height of the dispute, MTN even threatened to pack up and go home. Fear of being attacked indiscriminately can deter foreign companies from even setting up shop there.

That would undermine President Muhammadu Buhari’s efforts to wean the $ 500 billion economy from oil, which historically represented 90% of foreign exchange and two-thirds of government revenue. Such bounties mean that Nigeria’s leaders have never bothered to create an alternative source of income. Tax revenues are among the lowest in the world at around 6% of GDP, with companies bearing an unusually high 50% of this burden. In the rest of Africa the average is 19%.

With global oil demand plummeting by 2050, Nigeria will have a huge gap in its coffers that needs to be filled. But targeting companies at random is short-sighted. Increasing VAT revenue or collecting consumer taxes on things like cell phone time may be politically unpopular, but it will both generate more revenue and do less harm to the Nigerian economy.

Follow @edwardcropley on Twitter

CONTEXT NEWS

– Nigeria’s tax office announced on July 8 that it had ordered banks to freeze accounts of South African pay-TV company MultiChoice in order to reclaim $ 4.4 billion in unpaid taxes.

– MultiChoice said it had not been officially notified of the freeze, saying the case appeared to be based on baseless allegations about its subscriber base.

– The company said it had reached a constructive point of view with the authorities and hopes to resolve the problem amicably.

Editing by Swaha Pattanaik and Karen Kwok

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