A new report by Afrexim Bank states that the proposed 5% tax on companies earning over N100 million for community development projects will result in the exits of multinationals from the country.
The report titled, “Monthly Developments in the African Macroeconomic Environment” noted that the proposal is coming despite opposition from members of the private sector.
It states, “Nigeria’s National Assembly is considering a 5% levy on big companies to invest in community projects, despite opposition from companies and their supporters. Critics argue that companies already pay 20-30% of their profits in corporate taxes and the plan could prompt international companies to leave the market.”
The report further reviewed developments in the Nigerian economy during the month of June such as the proposed injection of N2 trillion into the economy, increase in mining charges and fees and others.
Backstory
Member of the House of Representatives, Hon. Olumide Osoba, recently introduced the Corporate Social Responsibility Bill 2023 to set high standards of corporate governance and ensure firms integrate long-term economic, environmental, and social aspects into their business strategies.
The bill includes provisions for establishing a department within the Federal Ministry of Budget and National Planning. This department will be headed by a commissioner appointed by the president based on the budget minister’s recommendation.
The commissioner will coordinate the activities of agencies related to CSR and monitor compliance with the law.
For non-extractive companies with a net worth of N500 million or a net profit of N100 million in a financial year, the bill requires them to form a CSR committee consisting of three or more directors, one of whom must be an independent director. This committee will be responsible for the company’s CSR policy and ensure compliance.
Objection to the bill
However, the bill has faced rejection from the organized private sector. The Manufacturers Association of Nigeria (MAN), which sent representatives to the public hearing organized by the parliament, described the proposal as ill-timed and unnecessary.
They argued that CSR should be at the discretion of each organization, emphasizing that it is an internal matter. Additionally, they expressed concerns about the current multiplicity of taxes and the high operating expenses that manufacturers are already struggling with.
Similar legislation in Nigeria
The provision of the bill to impose a 5% levy for community development is similar to provisions in the Petroleum Industry Act (PIA) which mandates oil companies to pay 3% of the operational cost to a trust fund for the development of host communities.
Furthermore, the amended Electricity Act of 2023 also imposed a similar levy of 5% of the annual operational cost of electricity generation companies to be paid to a trust fund for the development of the host community to address environmental concerns.
