Enhancing infrastructure financing through corporate tax

The 2020 financial year was a tough period for Nigerian companies, no thanks to the COVID-19 pandemic and an unfriendly operating environment.

The operating environment before the advent of the coronavirus was challenging with companies battling to live up to expectation in terms of Corporate Social Responsibility (CSR), income tax payments, dividends to shareholders and projects for host communities.

In spite of the challenging operating environment, some quoted companies had a good outing in terms of corporate income tax as well as dividend declaration in the review period.

Studies have shown that taxes remain the most sustainable and reliable source of public revenue of any modern state.

According to recent estimates from the International Centre for Tax and Development, tax revenues account for more than 80 per cent of total government revenue in about half of the countries of the world and more than 50 per cent in almost every country.

Specifically, in Nigeria, the search for a sustainable source of public finance has brought taxation to the forefront.

This is further reinforced by the dwindling oil revenue, which has led to increasing reliance on debt as a way of financing the country’s yearly budget.

It is noteworthy that as 2020 audited financial reports continue to trickle in at the nation’s bourse, some companies have boosted government revenue with huge corporate income tax payments.

Ironically, manufacturing firms that operate in an unfriendly environment headlined by inadequate power supply, lack of infrastructure, scarcity of foreign exchange pay higher taxes compared with their peers in the financial industry.

For instance, about 11 banks paid a total of N123.3 billion in taxes even though they are said to be more profitable than the 10 manufacturing firms who paid a combined N157.17 billion in taxes in 2020.

Dangote Cement leads the pack with N97.24 billion corporate tax in its 2020 audited report.

An analysis of the company’s result showed that it paid a total of N236.6 billion as corporate tax in three years; 2020, 2019 and 2018, amounting to a yearly average tax of N79 billion.

The cement company ended the three years with a profit after tax of N867 billion, representing an average profit of N287 billion.

Dangote Cement, no doubt, is ahead of other companies and banks in terms of profitability and tax payment.

BUA Cement, which became one of the leading cement manufacturing companies last year following the merger of Cement Company of Northern Nigeria and Obu Cement, recorded a profit of N131.1 billion in 2019 and 2020.

This means the firm posted an average profit of N65.5 billion in the last two years and paid a combined tax of N14.1 billion or an average tax of N7.1 billion.

Lafarge Africa, which had a rough patch for a long period before turning the corner in 2019, recorded a combined profit of N46.3 billion in 2019 and 2020 and paid a tax of N6.7 billion in 2020.

The banking sector has also been a great contributor in terms of tax to government, going by the figures of the some of the banks that have announced their audited 2020 results.

Specifically, Zenith Bank paid a total of N81.8 billion as tax from 2018 to 2020, translating to an average tax of N27.3 billion yearly.

The bank ended with a combined profit of N631 billion and an average of N210 billion every year in the last three years.

Also, Guaranty Trust Bank paid a tax of N102.3 billion from 2018 to 2020 or an average of N34.1 billion and posted a profit of N582.9 billion in three years, which amounts to N194.3 billion yearly average.

United Bank for Africa has contributed a total of N68.5 billion to government coffers as corporate tax in the last three years, meaning that it has contributed an average of N23 billion every year.

The bank posted N281.5 billion profit in three years and an average of N93 billion a year.

Stanbic IBTC Holdings, which also released its results last week, has paid a total of N41.1 billion as tax in three years and made a profit of N234.6 billion in three years or N77.5 billion yearly average.

From all indications, it is obvious that if the government makes the environment more conducive for companies to operate, the net corporate tax revenue would be higher.

Further analysis of Dangote Cement’s report showed that it sold 15.9 Metric Tonnes (MT) in 2020 from 14.1MT, including both cement and clinker sales, representing an increase of 12.9 per cent.

Revenues for the company’s Nigerian operations increased by 18 per cent to N720 billion, owing to demand in the domestic market.

This volume growth was enhanced by a successful innovative national consumer promotion “Bag of Goodies – Season 2” and lower rains in the third quarter compared to the previous year.

It posted a strong Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) of N421.4 indicating a margin of 59 per cent.

Dangote Cement posted a record high Pan-African EBITDA of N71.3 billion, which went up by 49.0 per cent. Within the period under review, the cement group commissioned its gas power plant in Tanzania.

Dangote Cement recorded a strong performance not only at the top line but also at the bottom line, owing to its cost saving measures.

The Chief Executive Officer, Dangote Cement, Michel Puchercos, in his comments on the results, said: “2020 was a good year for Dangote Cement across board.

“Several firsts made 2020 a productive year such as our maiden clinker shipment, maiden bond issuance and successful buyback programme.

“We increased our capacity by 3MT in Nigeria, commissioned our two export terminals and commissioned our gas power plant in Tanzania.

“All these were achieved whilst we focused on protecting our people, customers and communities from the impact of the pandemic,” Puchercos said.

He explained that the company’s profitability was further bolstered by its disciplined cost control measures in a highly inflationary and volatile year. “These measures resulted in a 37.7 per cent increase in profit after tax to N276.1 billion.

“I am delighted to report that Dangote Cement experienced its strongest year in terms of EBITDA and strongest year in terms of volumes.

“Despite a challenging environment, Group volumes for the year were up 8.6 per cent and Group EBITDA was up 20.9 per cent,” continued Puchercos.

The excellent performance of Nigerian companies, particularly Dangote Cement, in terms of payment of corporate tax is not lost on the Chief Operating Officer of InvestData Ltd., Mr Ambrose Omordion.

He said corporate Nigerians had over the years paid their taxes to the government, and that this was deducted before declaring profit.

Omordion said the taxes had boosted the revenue of the government, enabling it to fund the national budget to drive infrastructural development and grow the economy.

“Dangote cement in recent years has embarked on road fixing and reconstruction from it corporate income tax.

“This is a welcome development considering the solid road repair between Apapa and Ojodu Berger.

“This will encourage others to do same, if the government will provide the needed economic infrastructure to boost the business environment and reduce cost of doing business in Nigeria,” he said.

Also speaking, Mr Moses Igbrude, former Pubilicity Secretary, Independent Shareholders of Nigeria, commended Dangote Cement for raising the standard in terms of CSR.

“Taxes are rents paid by citizens and corporate entities to governments of countries all over the world.

“If corporate taxes are well coordinated, harmonised and well utilised it is a tool for economic development and growth for any country,” Igbrude said.

He said corporate entities in Nigeria paid over 40 per cent of their earnings to various levels of government in different taxes.

The shareholder activist urged government to see corporate entities as partners in progress.

“Government should play their part by formulating good tax policies to enhance growth of companies and encourage new companies to spring up.

“Government and their agencies should discourage multiple taxation and touts style of tax collection,” he added.

Igbrude said the government would need to tackle the infrastructure challenge in the country to attract more taxes, create employment and enhance dividends to shareholders.

To Dangote Cement and others, indeed, 2020 was rosy as they turned in good profits despite the coronavirus lockdown and a challenging environment.

But the federal government had the last laugh, raking in several billions in corporate tax.