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Tax credits provide an alternative option to a global challenge

Updated: Jul 17, 2019


Nigerian President, Muhammadu Buhari, signed Executive Order No. 007 on Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme in January 2019.


According to KPMG's Wole Obayomi, this is a "public-private partnership intervention that enables the Federal Government of Nigeria to leverage private sector capital and efficiency for the construction, refurbishment and maintenance of critical road infrastructure in key economic areas in Nigeria."


The Scheme grants income tax credit to private sector entities that provide funding for the refurbishment and rehabilitation of Eligible Roads. The Order defines “Eligible Road” as any road approved by the President as eligible for the Scheme.


The Scheme is available to all Nigerian companies, and participants will be entitled to utilise the total cost incurred for construction or refurbishment as a Tax Credit or a Road Infrastructure Tax Credit (RITC) against their future Companies Income Tax liability, until full cost recovery is achieved.


In 2018, it was estimated that approximately $3 trillion would be required to fund the infrastructure deficit in Nigeria over the next 26 years. As in many African countries, Nigeria's debt profile is rising and international stakeholders have called for the country to focus on building local funding opportunities.


Of particular interest is the creation of a new tradable instrument, or ‘RITC certificate.’


As the Federal Inland Revenue Service will issue an RITC Certificate to every participant to the scheme on an annual basis. Each certificate contains the RITC due and these certificates can be registered as a tradable instrument on a "relevant securities exchange and sold to a willing buyer on such exchange or by means of other approved transactions. Every sale must be reported to the Committee, which shall de-register the participant, and register the new beneficiary of the certificate."


The RITC also qualify as an asset in a participant’s or Beneficiary’s financial records.


This raises all sorts of questions including:

  1. How will this innovative scheme be implemented in reality?

  2. Due to the long term nature of the RITC, would the tradable certificate be considered as a capital market or money market instrument?

  3. How will the company which has made the trade for the certificate recoup costs, given that one of the fundamentals of the scheme involves no exchange of payment?

  4. What happens in the case of insolvency?

  5. What happens to un-utilised RITC after the ten-year duration of the Scheme?

  6. What, if any restrictions are there on claimable tax credits?


Do you want to hear more about Decree 007 and how this idea could be leveraged across the wider African infrastructure sector?


KPMG senior executives, who consulted with the Nigerian government in the development of the Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme will be speaking at the Africa Road Infrastructure and Investment Congress in September.


Register today to ensure you are there to hear more about this and other key strategies, opportunities and challenges affecting Africa's road sector.