Oil and gas companies desirous to reduce their tax burden and grow profitability are advised to consider increasing investments in research and development (R&D).
This is with a view to taking advantage of the incentives provided in existing fiscal laws of the Nigerian Content Development and Monitoring Board (NCDMB), and the Federal Inland Revenue Service (FIRS).
The Executive Secretary, NCDMB, Simbi Wabote, and the Executive Chairman, FIRS, Muhammad Nami, gave advice on Tuesday in Yenagoa, Bayelsa State, at the one-day Nigerian Oil and Gas Industry Suppliers’ Tax Awareness Workshop jointly organized by the two organizations.
Delivering the keynote address at the event, Wabote was quoted as saying that the Finance Act 2021 and other extant tax codes relating to Research and Development provide attractive tax incentives for oil and gas firms that invest in R&D.
He hinted that many oil and gas companies were oblivious ofthe opportunities that exist within Nigerian tax laws for the oil industry to harness from investing in Research and Development.
He reiterated that such workshops provide the necessary education and enlightenment that enable businesses to position themselves appropriately to benefit from making R&D an integral part of their business model.
He observed that the low level of R&D funding by private companies is partly linked to inadequate information. “The consequence is not only significant capital flight in the acquisition of technology required for oil and gas projects and operations, but also players in the sector are tied to the apron and direct control of the foreign supply chain who control the technological advances arising from their R&D activities.”
Wabote cited examples of leading Fortune 500 companies that commit between 5-10% of their annual budgets to R&D, which enables them to produce innovative products and make significant tax returns to the Government and create huge employment opportunities.
Operators can no longer neglect R&D, as it is key to local content development, enhancement of future tax revenue to the government, development of home-grown solutions and retention of industry spending within Nigerian financial institutions.
Speaking further, he expressed the hope that the workshop will change the gross underfunding of R&D in Nigeria, currently estimated at less than 0.2% of the national budget.
He insisted that operators can no longer neglect R&D, as it is key to local content development, enhancement of future tax revenue to the government, development of home-grown solutions and retention of industry spending within Nigerian financial institutions.
He remarked that “that access to the Nigerian Content Intervention Fund by the local supply chain has been one of the major contributors to the growth in local content level from less than 5% in 2010 to 54% in 2022.”
He hinted that the Board is “pushing for similar performance in Research and Development by sharpening our focus on the various elements that will enable the growth and appreciable impact of research and development in our economy.”
The Executive Secretary identified funding as one of the key pillars of R&D, and that informed the launch of the $50 million Nigerian Content Research & Development Fund to drive strategic programmes and developments in the R&D ecosystem.
He however insisted that the government should not be the sole financier of R&D, pointing out that “the bulk of R&D funding should come from the private sector who are business owners and will ultimately benefit directly from the research outcomes.”
Profitable business
In his remarks, Nami reiterated that “Research and Development have been identified as a veritable means for companies that want to remain competitive and profitable in today’s rapidly changing business environment.”
Nami, who was represented by his Senior Special Assistant, Gabriel Ogunjemilusi, provided details of the Federal Government’s tax regime, incentives, and related facts.
He said: “Allowable deduction of up to 10% of the amount of reserve made out of the profits of a period by a company for research and development. Claim of capital allowance on capital expenditure on plant and machinery used for R&D activities; pioneer status tax holiday for R&D Companies; companies and other organizations that invest in R&D facilities for commercialization can claim a tax credit of up to 20% of the cost of their qualifying expenditures.”
He assured participants that the FIRS will continue to support all companies in Nigeria to take advantage of available fiscal incentives provided by the Nigerian tax laws.
The Workshop attracted renowned finance and legal experts who spoke on: Provisions of the NOGIC Act on R&D, R&D Operating Model and Imperatives on Success; Royalty Potentials from R&D Investments; and Constraints of Investing and Way Forward.
