Seplat Responds to Okonjo-Iweala Waiver Accusations

Seplat Petroleum Development Company Plc has issued a strong response to the accusations levelled by the Co-ordinating Minister of the Economy and Minister of Finance, Ngozi Okonjo-Iweala, at Seplat.

In a letter to the Executive Secretary of the Nigerian Investment Promotion Commission (NIPC), the Minister said that the federal government had lost a lot of revenue due to fraudulently tax holidays granted to companies by officials of the NIPC to companies that did not qualify. She however singled out Seplat among the oil companies that had been wrongfully granted such waivers.

Seplat has issued a statement to clarify its position on the matter. Seplat said it had applied for pioneer tax incentive in 2013, through NIPC. The company said it followed the prescribed process for application and provided all the information and documentation required in support of the application. At the time of the application, Seplat was aware that in line with the objective of the NIPC Act, the government intended to promote investments in certain areas of the Nigerian economy and particularly in relation to indigenous participation in the oil and gas industry. The Chief Executive Officer of Seplat, Austin Avuru said in the statement: “This we believe was aimed at engendering rapid sectorial growth and employment generation.”

The pioneer tax incentive was subsequently granted to Seplat and the Federal Inland Revenue Service duly acknowledged the grant waiver to be applicable to the company for 5 years.

In the statement, Seplat goes on to list the ways in which it had utilized the statement, as a demonstration that the idea behind the tax waivers, was working as companies like Seplat have invested the tax savings in projects that have benefitted the economy. Among the projects are:
• Increase in Gas Supply to the Domestic Market – $300 million invested in gas development over the tax holiday period, taking gas production from 90 MMscfd to the current level of around 200 MMscfd.
• Increase in Oil Production – oil production from a daily average of 14,000 barrels in 2010 to the current daily rate of over 70,000 barrels, thereby increasing Seplat’s royalty payments to government from $40 million per annum in 2010 to about $340m presently.
• Continued funding of the NPDC/Seplat JV despite substantial outstanding cash calls.
• Employment and Community Development – over 300 new jobs created and several community development projects in its operating areas.
• Statutory payments post pioneer period – aggressive re-investment of pioneer tax waiver proceeds have led to which has led to a significant increase in oil and gas production and as such, the company’s tax and royalty payments are expected to double post pioneer period compared to the level it was at pre pioneer period.
In its defence, Seplat says that is what the pioneer incentive program was designed to achieve. The company believes that it is an excellent example of the purpose of establishing the pioneer incentive scheme. The company said it intended to continue to contribute meaningfully to the growth and development of the Nigerian economy.

In her letter to NIPC, Okonjo-Iweala, said that Pioneer status, giving tax holidays to qualifying companies from the rate of 65 per cent, was granted to companies whose products do not meet the requirements of the list of industries or products specified in the schedule to the Industrial Development (Tax Relief) Act.

Furthermore, she said, the tax relief period for a pioneer company was to commence from the production date of the company for a period of three years in the first instance. The period was thereafter extendable for an initial one year period and then for another one year period, but subject only to the satisfaction of the President that certain requirements such as rate of expansion, standard of efficiency, level of development of company, among others, had been met.

To compound matters, according to Okonjo-Iweala, in some instances, Pioneer Status was granted in in arrears leading to recipient companies demanding refunds of taxes already remitted into the Federation Account.

Whilst not saying how much such wrongfully issued tax holidays had cost the nation, she did say that such tax loss of revenue base, erosion and profit shifting had cost the nation $60 billion.

Industry watchers are wondering why, if indeed she was aware of the wrongful issuance of tax holidays by NIPC, Okonjo-Iweala said nothing all this time and allowed the practice to continue. One lawyer commented that wished to remain anonymous commented that any attempt to wrestle unpaid taxes from the companies to whom the waivers were wrongfully given could result in law suits against the federal government, especially given the kinds of sums that are at stake.