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Report | Leaking Revenue | How A Big Tax Break to European Gas Companies Has Cost Nigeria Billions

Nigeria, Africa’s most populous country lost out on US$3.3billion as result of an extraordinary ten year tax break granted by the Nigerian government to some of the world’s biggest oil and gas companies: Shell, Total and ENI. 

The US$3.3billion is urgently needed in a country where 110 million people live in extreme poverty6 and more than half of the population does not have access to clean water. 11 million children are out of school and US$3.3 billion is more than the Federal Government’s education budget for 2015, which at 11.29% of the aggregate budget remains lower than UNESCO’s recommended education budget of a minimum 15% of a nation’s annual budget.7 Fifteen out of every hundred children die before the age of five and US$3.3 billion is three times the Nigerian healthcare budget for 2015. Nigeria is Africa’s largest economy, the continent’s largest oil producer and it has the continent’s largest reserves of natural gas.8. But it is a country marked by big inequalities, and more than 60% of the population live on less than one dollar a day. The massive tax break was enabled by a unique law passed in 1990. It was a triple whammy – a tax break in three parts – stretching from 1999 to 2012.

  • First came a regular five year tax holiday granted to most investors in Nigeria; second, an extension for a further five years exceptionally allowed for this particular deal, and third, tax allowances that would have been used during the tax holiday were rolled over and exempted the companies from tax for a further 2 years. The tax holiday extension meant US$2 billion of revenue was lost, and the rolled over allowances, where the same tax was effectively foregone twice, a further US$1.3 billion. We do not count the tax foregone in the first five years, as this is the ‘normal’ tax break.
  • Addressing how much this tax break cost Nigeria is particularly pertinent as there is a proposed bill to amend the country’s Companies Income Tax Act 2004. This new tax law would allow more companies to obtain 10-year tax holidays in Nigeria. This is only one of many examples of wasteful tax incentives to foreign investors across the African continent. Previous ActionAid research shows that tax incentives cost developing countries at least US$138bn every year.9 While international institutions such as the International Monetary Fund (IMF) and the United Nation Economic Commission for Africa (UN-ECA) are concerned about the race to the bottom over tax incentives,10 an adequate national and/or regional response is still largely absent.
  • With this briefing, ActionAid encourages Nigeria and other resource rich developing countries to review their tax incentive policies, to publish those policies and practises and all communications with corporations pertinent to tax incentives, and to collaborate with other countries to end harmful regional tax competition. It recommends international companies to be transparent about their finances, including reporting their profits, sales, assets, number of employees and tax payments to governments in each country where they operate (including taxes not paid due to tax breaks). 

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