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What we know about FG’s new tax relief policy for roads construction

Minister of Power, Works and Housing Babatunde Fashola and Minister of Finance, Kemi Adeosun

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What we know about FG’s new tax relief policy for roads construction

The federal government is mindful of the fact that available government resources are insufficient to meet the nation’s infrastructure deficit. On Thursday, the Federal Executive Council announced a tax relief policy for private companies willing to inject funds into the construction of roads.

What this is about?: According to Minister of finance, Kemi Adeosun, who spoke to the press after the FEC meeting:

  • A Road Trust Fund (RTF) has been set up. The concept for the RTF was jointly developed by the Federal Ministry of Finance and the Federal Ministry of Power, Works and Housing.
  • Per Adeosun: “The RTF is a form of Public Private Partnership that will accelerate the provision of Federal Roads by allowing private sector operators to collectively fund road provision in exchange for tax credits.”
  • This doesn’t mean the FG is out of road construction – the RTF will complement the FG’s budgetary allocation to roads.
  • In a nutshell: The RTF policy gives private operators an incentive to fund infrastructure development. In return for their funds, they get “tax relief based on the amount of capital contribution (on a pro-rata basis).”
  • Under the scheme, companies will be allowed to recover all the costs they incurred on road infrastructure as a tax credit against total tax payable (including up to 10 per cent for cost of funds).
  • The recovery of the cost by companies will ideally take three years. However, the minister said the scheme would allow for cost recovery within a single year for economically disadvantaged areas. (PS: We have not been able to verify how the FG defines economically disadvantaged areas.)
  • Some companies like Dangote and the NLNG have identified roads they would like to build. However the minister said “the scheme is designed such that financial intermediaries will be promoting Road Trust Fund projects and soliciting commitments from interested companies.”

Government’s role in the arrangement:

  • The Federal Ministry of Power Works and Housing, would approve the road designs, and monitor all approved Road Trust Fund Projects.
  • The ministry would manage costs and timelines.
  • The ministry would also ensure equal development across Nigeria by rebalancing the Federal budget, where necessary.
  • The Bureau of Public Procurement would scrutinize all costs and contractors in line with legal requirements. Adeosun said this “will ensure that costs are not inflated and that unqualified contractors are not used on the projects.”

What happens after work is completed?: According to Adeosun, completed roads would be handed over to the FG. Such roads may then be tolled in accordance with the National Tolling Policy if the FG deems it fit to do so. 

Why this matters: Federal roads reportedly carry more than 80 per cent of national vehicular and freight traffic, and accounts for 17 per cent of the total national road network. However, with declining revenue and competing needs, the FG has been unable to carry out much needed road construction projects. If the private sector keys into the initiative, it could free up resources for other purposes in addition to the other benefits provided by having good roads.

Another view: Early this week, the governor of Sokoto, Aminu Tambuwal, said this:  “There is the need for the federal government handover the roads to states because states governments are closer to the people and we have more efficient methods of supervision. If this is done, it will go a long way in ensuring that the vast majority of major roads and highways in the country are well maintained,” he said.

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