Thursday , July 7 2022
Breaking News
Home / Special Reports / How Curious $3.3 Million Tax Holiday To Shell, Total, Eni, Is Killing Nigerians – Report

How Curious $3.3 Million Tax Holiday To Shell, Total, Eni, Is Killing Nigerians – Report

When Dafe Rose (53) was assigned as the head teacher of Abuator Primary School in Delta State in mid-2015, she came expecting a decently well-equipped public school. It is, after all, in the heart of Nigeria’s immensely wealthy oil region. A large oil and gas installation is just a stone’s throw away. But what greeted Dafe on her first day of work was far from decent.

The school has no library, no toilets, no blackboards, and no educational materials. It doesn’t even have a sufficient number of classrooms; three roomThe lack of accessible maternal health care for women like Elohor puts both their and their babies' lives in danger. Photo: ActionAid/Nigeria Leaks cater for students from primary one to primary six.

To accommodate the different grades, each room has been partitioned into two with planks and disused sacks. Students struggle to hear and concentrate as noise filters easily between the partial, plank and bag walls.

The 14 kindergarten children at Abuator Primary School have it even worse than their elder schoolmates. Their class takes place under a mango tree, where they sit on dirty, disused cement sacks laid on bare ground. Soldier ants frequently drop from the tree and crawl under the children’s clothes.

Dafe says it grieves her every time she has to send the children to their ‘classroom’ under the mango tree. It is far from an ideal learning environment.

What makes the situation even more frustrating is that on the school grounds sits an uncomplete three-classroom block, now in virtual ruins. It was built by the Delta State Primary Education Board around 2005.

“That building has been abandoned for many years,” says Dafe. “If the government can complete that, we would be able to accommodate all our children under a roof away from the elements.” The community has written many letters of protest to the State Primary Education Board over the abandoned building, but has not received any favourable response.


Dafe has since taking matters into her own hands. The community is gripped by poverty, but she managed to convince the parents to contribute a portion of their already meagre earnings to the purchase of plastic chairs and tables for the kindergarten children. She then got a nearby church to let out its building to serve as a classroom.

All across Nigeria, even in the oil-rich south-east, there are dedicated teachers like Dafe struggling passionately to educate the country’s children with little or no provisions from the government.

But this need not be the reality. Billions of dollars in public revenue can be saved if the Nigerian government stopped the granting of harmful tax incentives to foreign investors.

An exceptional 10-year tax holiday offered to three of the world’s largest oil and gas companies, Shell, Total and ENI, cost the public purse US$3.3 billion alone. In a country where 10.5 million children are out of school, this is an amount greater than the 2015 federal education budget.

The lack of accessible maternal health care for women like Elohor puts both their and their babies’ lives in danger. Photo: ActionAid/Nigeria Leak

Losing their babies while Shell, Total, Eni enjoy tax holiday

Elohor Siakiere (30) remembers vividly the day she lost her baby. It was July 19, 2015, an unusually sunny day, she says, for that time of year in Delta State, Nigeria. “I was pregnant and when my labour started, I was transported in a canoe to Ukperhren where I was put on a motorcycle to go to the general hospital in Warri,” says Elohor. “But the road was very bad and I fell down many times. It was a painful ordeal to get to the hospital.”

Elohor survived the precarious journey in the canoe and the 15 kilometres on the muddy and slippery road, but unfortunately her unborn child did not. “At the hospital, the doctor told me the baby was dead,” Elohor says quietly. “They did an operation to remove it. I felt very bad losing my baby.”

With the hospital so far away, many women in the community of 6,000 have little choice but to turn to traditional birth attendants in their community who rely on herbs and unscientific practices that often have disastrous consequences for the mother and/or the child.

According to Elohor, the community became fed up with the government’s lack of action and decided to build a healthcare centre themselves. The clinic, which served Esaba and four other communities, was staffed solely by one nurse. Unfortunately, the nurse passed away in February 2015 and as of October 2015 the government still had not provided a replacement, despite the community’s repeated requests.

Elohor says that in this time period about five children have died “because we could not get them to hospital fast enough.” The great and tragic irony of Esaba is that a mere four kilometres away sits a huge source of potential public revenue that could pay for roads, a school and a proper clinic for the community: Otorogun gas plant, operated by Shell Petroleum Development Company.

Meanwhile, the Nigerian government passed a unique law that gave an exceptional ten year tax holiday to Shell as well as Total and ENI, three of the world’s biggest oil and gas companies. This wasteful act has resulted in the loss of US$3.3 billion of public revenue.

If the Nigerian government were to stop offering such harmful tax incentives to foreign investors, women like Elohor may not be mourning the unnecessary death of their children and worrying about the futures of their surviving ones.

Why does it matter? The human cost of the tax holiday

With its 182 million inhabitants, Nigeria is the most populous country in Africa, and the seventh most populous country in the world.40 Nigeria is endowed with enormous natural resources including more than 30 different minerals. Nigeria is the largest oil producer in Africa and holds the largest natural gas reserves on the continent.41 Nigeria is also Africa’s largest economy. By 2050, Nigeria is expected to become one of the largest 20 economies in the world.

But while the country is building its economy, Nigeria also has the third largest population of extreme poor in the world.42 More than 60% of the population lives in extreme poverty.43 This means that more than 110 million Nigerians live on less than one US dollar a day. Research by the UN Development Programme (UNDP) shows that less than half of the population has access to clean water.44 Nigeria is one of the countries in the world with the largest income inequality between the few super rich and the majority living in extreme poverty.

Looking at social spending, the Nigerian government budgeted a total of US$2.61 billion for education, and US$1.4 billion for healthcare in 2015.

This means that if the Consortium would have been given a five-year tax holiday instead of a decade, the additional revenue to the Nigerian government could have paid education at the current level for over a year, or healthcare at the current level for over two years.

Increasing the education budget is a necessary investment. Almost half of the Nigerian population isunder 15 years old. This puts an enormous pressure on the educational system. Despite an increase in the enrolment rates in recent years, approximately 11 million children are out of school, out of which 4.7 million children of primary school age are not in school.

While an inadequate budget is not the only factor preventing children from going to school, more funds in education could greatly improve access to education. A higher budget could pay for more qualified teachers, build new schools, buy necessary materials and eliminate school fees, the latter a crucial factor for the poorest.

Similarly, a better and more accessible health care system is needed to fulfil basic rights for Nigerians living in poverty. Child mortality rates illustrate this. Skilled health personnel attend just over half of all births in the country, and out of thousand live births, 61 infants do not survive the birth, and an additional 95 children die before their fifth birthday. Of the children that survive, one in four is under weight.

In its 2010 strategy for reaching the Millennium Development Goals (MDGs), the Nigerian Presidential Committee on the Strategy and Prioritisation of the MDGs estimated that meeting the MDGs would cost Nigeria approximately US$163 per person per year between 2010-2015. With US$3.3 billion extra on its books and accompanied by effective policies, the Nigerian government could have ensured that in that period 4 million persons had access to the basic services described in the MDGs.

US$3.3 billion would do a lot for Nigeria What is the value of US$3.3 billion to the Nigerian economy?

More than the US$2.4 billion Nigeria allocated to education in the 2015 budget, in a country where 11 million children and young people do not go to school.

More than twice the US$1.4billion Nigeria allocated for healthcare in the 2015 budget, in a country where almost 15 out of 100 children die before their fifth birthday.

What is the value of US$3.3 billion to Shell Total and Eni?

Just over 4% of the three companies’ total world wide reported net profits in 2013.
22% of the three companies’ profit from the Consortium between 2004-2013.

Wasteful tax incentives in Africa and beyond

The Consortium’s tax holiday in Nigeria is one of many examples of corporations being offered generous tax terms in developing countries. Benefits can include reduced tax rates, exemption from specific taxes or tax holidays granted for a period of time.

In a 2014 paper, the OECD names tax holidays as one of the two potentially most harmful types of tax incentive.56 Tax incentives can be offered in a specific sector, aiming to boost investments in strategic sectors of the economy. They can also be offered in specific geographical areas, often called special economic zones.

Not all tax incentives are harmful. The tax system may be used to promote domestic policy choices, such as environmental objectives, or the development of particular domestic sectors, in accordance with a country’s national development plan. Tax incentives for corporate investment are meant to generate economic benefits which outweigh the cost of lost revenue, but they can just be a handout.

In order to assess the public benefits of tax incentives, it is necessary to set clear objectives for them and consistently evaluate whether or not these objectives are being met. Where objectives are not being met, this should trigger the removal of the tax incentives.

Finally, the potential economic benefits of tax incentives need to be balanced against the lost revenue in a systematic fashion. Incentives which do not meet these criteria are harmful.

The main reasoning behind granting tax relief to corporations is the idea that it will promote investments that attract capital and contribute to job creation, and that this will deliver a high return in the long run or promote investments into a specific sector such as renewable energy. Other potential benefits are technology transfer and increased demand that can boost local and national industry.

Investors will sometimes ask for tax incentives on the basis that a particular investment will not be viable without them. While this has been the predominant narrative, evidence suggests differently.

International institutions such as the World Bank, the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) now increasingly warn against excessive tax incentives.

Countries’ fear of losing out on investments if not granting generous tax deals has created a harmful competition based on large tax incentives. A 2012 IMF paper confirms a ‘partial race to the bottom’ over tax incentives. While this may be good for international businesses whose tax bills are lowered, evidence shows that tax incentives are not efficient in attracting investments. A 2006 IMF study shows that the countries that have been the most successful at attracting foreign investors have not offered large tax or other incentives.

The report also shows that providing such incentives was not sufficient to attract large foreign investment if other essential conditions were not in place.

A report prepared for the G20 by the IMF, OECD, United Nations and World Bank in 2011 concludes along the same lines: “Incentives, including corporate income tax (CIT) exemptions in free trade zones, continue to undermine revenue from the CIT; where governance is poor, they may do little to attract investment – and when they do attract foreign direct investment (FDI), this may well be at the expense of domestic investment or FDI into some other country.”

Even businesses themselves say that tax incentives are not key deal-breakers. Investment decisions depend more on factors such as stable economic and political conditions.61 In the World Bank’s recent Investor Motivation Survey for the East African Community, 93% of investors said that they would have invested anyway, had tax incentives not been on offer. Tax incentives ranked only 17th, behind a host of factors including exchange rates, utility and transport infrastructure.

Generous tax incentives may even contribute to undermining what investors seem to value the most. In a 2014 study, the OECD cautions that ineffective tax incentives may erode resources for the more important drivers of investment decisions.

Investors attach great value to factors such as good infrastructure, security, a stable energy supply and not least a healthy and well-educated work force. Tax revenue is a prerequisite for the existence of these public goods, and businesses may make higher profits if they contribute their fair share of taxes and get public goods in return.

The OECD warns that tax incentives that lower government revenues cannot compensate for or be an alternative for a poor investment climate. Discretionary tax incentives – that is, incentives that are granted on an ad-hoc basis to individual investors – are particularly undesirable because they undermine consistency of treatment between investors.

Leaking revenue 15 ActionAid estimates that corporate tax incentives cost developing countries over US$138 billion every year.64 Apart from the sheer value of the lost revenues from tax incentives, decisions to grant them are often shrouded in secrecy, and not based on a thorough public cost-benefit analysis. Corporate tax incentives are frequently unaccounted for in the national budget and are non-transparent, reducing public accountability.

Tax incentives, like cuts to headline tax rates on corporate profits, have negative long-term impacts by encouraging harmful tax competition. Apart from the immediate losses of tax revenue, the practice also runs a risk of encouraging a race to the bottom, where countries undercut each other’s effective tax rates in order to attract investment, with all countries involved losing out on tax revenue as a result.

As Christine Lagarde of the IMF has pointed out – “By definition, a race to the bottom leaves everybody at the bottom.”

Some governments are however responding to this problem. In April 2015, Kenya was reported to be considering a proposal from its tax authority to scrap tax exemptions, including a 10-year tax holiday for foreign investors in its export processing zones.

Tanzania passed new laws in 2014 to curb tax incentives, aiming to collect another US$500 million a year in revenues. In the Philippines, however, a new law to bring more transparency to tax incentives appeared to be contested by the government.




Check Also


This is the interview report with Debo Adedayo on June 12, 2022. Viewership figures on …


By Toyin Falola Introduction “A heavy basket cannot be lifted to the head with one …

Social Media Auto Publish Powered By :