Nigeria flies corporate tax self-harm flag


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

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

The latest victim of Abuja’s dispersed approach to corporate taxation is South Africa’s MultiChoice (MCGJ.J). Nigeria’s tax collection office says the pay-TV company owes $ 4.4 billion in unpaid dues, nearly a third more than the company’s value on the Johannesburg Stock Exchange. Fortunately for MultiChoice shareholders, only a fraction of the initial demand will likely need to be paid.

Judging by the company’s 7% share price drop, investors expect a penalty in the order of $ 260 million, which is 94% less than Nigeria is demanding. Even that could be an overestimate. A $ 2 billion tax bill against South African mobile phone giant MTN (MTNJ.J) in 2019 literally went nowhere a year later. And the $ 8 billion the central bank demanded from the same telecommunications company for allegedly illegally repatriated dividends has become a slap in the face of $ 53 million.

Such missteps damage the credibility of the Nigerian authorities. Businesses and individuals will naturally assume that tax bills are either negotiable or avoidable. It also does not bolster Africa’s most populous nation’s credentials as an investment destination. At the height of his dispute, MTN even threatened to pack up and go home. The fear of being randomly targeted can deter foreign companies from setting up there in the first place.

It would undermine President Muhammadu Buhari’s efforts to wean the $ 500 billion economy off oil, historically the source of 90 percent of foreign exchange and two-thirds of government revenue. Such bonuses mean that Nigerian leaders have never bothered to create an alternative income base. Tax revenues, at around 6% of GDP, are among the lowest in the world, with businesses bearing an unusually high 50% share of this burden. The average in the rest of Africa is 19%.

As global oil demand is expected to collapse by 2050, Nigeria will have a big void in its coffers to fill. But targeting companies at random is shortsighted. Raising VAT revenues or adding consumer levies on things like cellphone airtime may be politically unpopular, but both will increase income and be less damaging to the Nigerian economy.

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NEWS CONTEXT

– The Nigerian tax administration announced on July 8 that it had asked banks to freeze the accounts of South African pay-TV group MultiChoice in order to recover $ 4.4 billion in unpaid taxes.

– MultiChoice said it had not been officially made aware of the freeze and said the case appeared to be based on unfounded allegations about its subscriber base.

– The company said it had engaged with the authorities constructively and hoped to resolve the issue amicably.

Editing by Swaha Pattanaik and Karen Kwok

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