Monday, August 03, 2009

No to Social Responsibility Tax

A Corporate Social Respon-sibility (CSR) Bill is currently going through the legislative process at the Senate. The bill seeks to set up a Corporate Social Responsibility (CSR) Commission, which will supervise CSR activities in Nigeria, and also make it mandatory for firms to pay no less than 3.5% of their profit before tax to meet their CSR obligations.
Sponsors of the bill argue that it will address the poor attitude of firms to corporate social responsibility caused by “lack of adequate laws to regulate their behaviour and compel positive responsible response to the community; and lack of a supervisory authority to enforce the laws.”
According to them, the bill will create a standard for social responsibility for corporate organisations that is consistent with international standards.
We are vehemently opposed to the bill, particularly the social responsibility tax. And there are many reasons for any well-meaning Nigerian or investor to call for extreme caution over such a bill that is inconsiderate of the operational circumstances of corporate bodies in Nigeria.
First, the claim that the bill will make social responsibility for firms consistent with international standards is faulty. Corporate Social Responsibility, although voluntary, has become a deliberate inclusion of public interest into corporate decision-making. It is a common practice of corporate self-regulation integrated into a business model.
Giving back to a community part of the profits of companies that operate there, has become a given as a result of global social pressure on corporate bodies to accept responsibility for the impact of their activities on the environment, consumers, employees, communities, stakeholders and all other members of the public.
Also corporate bodies would proactively promote the public interest by encouraging community growth and development.
Although, the sponsors of the bill may be right to say that not all firms in Nigeria are alive to their corporate social responsibility, all major companies have embraced the practice.
Second, to supplant government’s responsibilities to the people with corporate social responsibility as the case is in parts of the Niger Delta, which some senators have cited, is unfair. In many parts of the Niger Delta, the little development the communities experience is through the oil companies. Government presence is not felt in these areas at all. That is in spite of the creation of local government areas.
In the case of the oil industry, the federal government takes about 90 per cent of the proceeds on the sale of every barrel of oil. A large part of the money shared according to the revenue allocation formula to the three tiers of government is from this source. And we believe it would be a worthwhile exercise for the Senate to follow up how this money is spent.
Three, the multiplicity of taxes in the country is common knowledge. Companies in Nigeria are some of the most taxed companies in the world. And adding a social responsibility tax will be an overkill. Nigerian companies pay between 20-30 per cent of their profit as tax (about 90 per cent for oil producing companies), as well as withholding tax (10 per cent) capital gains tax (5 per cent), Education tax (2 per cent) and VAT (5 per cent). In addition to that are the multiple taxes, some of them rather funny, levied by the states and local governments in the name of internal revenue generation.
Four, one would have thought that in seeking to add to the tax burden of the companies, the Senate would have examined the operating conditions of the private sector. The model for private sector – led growth assumes an enabling environment for business to thrive. Presently, companies that wish to thrive in Nigeria have to provide own villages- with functional socio-economic infrastructure. The poor power supply situation alone has increased cost of production by some 40 per cent for some companies. And that is so for those whose operations are big enough to survive the harsh conditions. Even before the global economic meltdown, firms were shutting down in their hundreds.
So indeed, in times like this, one would have thought that improving the operating conditions of business to attract more investment and to ensure that existing companies do not close down, should be of greater concern to government.
Five, considering the high level of corruption in some commissions, we are not persuaded that the commission will not be another opportunity for people to line their pockets. Indeed the effectiveness of some of these commissions is in doubt. For example, looking at the state of education in the country, it is difficult to see the value addition the two percent education tax has made to the standard of education in this country.
Lastly, we share the view that some of the roles of the proposed commission are a duplication of those of some existing agencies.
For the reasons cited above, and many more we are constrained by space to cite, we believe that the Senate should do well to spare the country this additional burden to corporate bodies and one more public bureaucracy for possible corruption. But if the Senate wishes to go ahead, we advise that it looks elsewhere for the commission’s funding.