Shipping levies: NLNG’s futile quest for perpetual tax holiday
Six years after, the Nigerian Liquefied Natural Gas Limited NLNG has held the nation’s apex maritime regulator, the Nigerian Maritime Administration and Safety Agency NIMASA, to a long legal battle in a seeming futile effort to evade payment of statutory levies and fees, citing tax holiday granted to it since 1990. But stakeholders have argued that tax holidays globally are for a specified period of time and not in perpetuity.
BY OUR CORRESPONDENTS
The ruling of Friday March 29, 2019 by the Court of Appeal, Lagos Division, has thrown up some issues in the six-year feud between theNigerian Maritime Administration and Safety Agency NIMASA and the Nigerian Liquefied Natural Gas Limited NLNG over the latter’s refusal to pay statutory fees and levies. This landmark ruling might also serve as a note of warning to other corporate bodies in Nigeria’s shipping industry including multinational shipping and oil companies as well as terminal operators, who believe that Nigeria is a lawless nation and have over the years capitalised on this erroneous impression to evade payment of statutory fees and levies to government and its agencies and also impose arbitrary charges. This ruling more than ever before has also rekindled the hope of maritime operators in Nigeria’s judiciary. In clear terms it suggests that it is no longer business as usual.
The appellate court in this recent ruling had set aside an earlier judgment of a Federal High Court sitting in Lagos, which had exempted the NLNG from levies payable to NIMASA, as provided under the Coastal and Inland Shipping Cabotage Act 2003, the NIMASA Act 2007, Marine Environment (Sea Protection Levy) Regulations, and other laws of the Federation.
Justice M. B. Idris, the presiding justice of the Federal High Court had in the judgment delivered sometime in 2016 upheld NLNG’s plea that the company enjoys a tax holiday and therefore not liable to pay all statutory levies accruable to the agency. These comprise the three per cent levy on gross freight on inbound and outbound international cargo, two per cent Cabotage Levy and Sea Protection levy, which are partly paid into Federal Government’s coffers and also constitutes a major source of funding of the agency.
This ruling, according to the appellate court was premised on the fact that NIMASA, the country’s maritime administration was not given a fair hearing at the lower court. Justice Mohammed Lawal Garba, in a lead judgment therefore directed parties to return to the lower court for fresh trial under another judge. One of the direct implications of this ruling is that it has restored the status quo by reaffirming that NIMASA has the statutory powers to continue to collect the prescribed levies under the three legal instruments namely: the NIMASA Act, 2007, Cabotage Act 2003 and the Marine Environment (Sea Protection Levy) Regulations 2012, the Merchant Shipping (Ship Generated Marine Waste Reception Facilities) Regulations 2012 and indeed other laws of the land.
According to lead counsel of NIMASA, Mr. Lateef Fagbemi SAN, the effect of the ruling is that the Federal High Court is ordered to revert to the fundamental issue of fair hearing while the NLNG continues to pay the statutory levies, pending another ruling by the lower court on the matter.
Trouble started on June 21, 2013, when NIMASA served detention notices on two vessels belonging to the NLNG over its refusal to pay these statutory shipping fees. The refusal pay to these levies, especially the three per cent levy on gross freight on inbound and outbound international cargo constituted a major threat to the agency as the levy constitutes over 90 per cent of its revenue source, since it does not collect subvention form the government.
For instance, section 15 (a) of the NIMASA Act, 2007, provides that the agency should among other sources be funded from proceeds of three per cent gross freight on all international inbound and outbound cargo from ships or shipping companies operating in Nigeria to enable it meet its operational cost.
Also, section 42 (1) of the Cabotage Act 2003, provides for the establishment of a Cabotage Vessel Financing Fund (CVFF). The fund is designed to promote the development of indigenous capacity by providing financial assistance to Nigerian ship owners to acquire vessels while section 43 (a) provides that a surcharge of two per cent shall be paid on every contract sum performed under the Cabotage trade.
Non-payment of these levies and fees would impinge on the real essence of the agency, in terms of generating funds for its day-day operation in respect of the three per cent freight levy and carrying out some of its core mandates. It was probably in the light of this that the agency then swore that it would not vacate the lid placed on NLNG’s gas export operations by its subsidiary firm, Bonny Gas Transport Limited until the last kobo was paid.
On the one part, NLNG insists that it is not bund to pay both levies, a right it argued was conferred on it by sections six (8) and six (10) etc. of the NLNG Fiscal Incentives, Guarantees and Assurances Act and the NLNG Act, which provides that no export duties, taxes or other duties, levies, charges or imports of a similar nature shall be payable or imposed on exports of liquefied natural gas or other hydrocarbons produced by the company.
The NLNG also cited the provision of its enabling Act, which specifies that neither the company nor its shareholders shall in any way be subject to new laws, regulations, taxes, duties, imports or charges of whatever nature which are not applicable generally to the companies incorporated in Nigeria
The joint venture gas firm had also cited section six (10) of its enabling Act, which states that the provisions of the National Shipping Policy Act (former National Maritime Authority Act 1987) and regulations made under it shall not be applicable to it, its contractors or shipping company (, Bonny Gas Transport Limited).
NIMASA on the other side has also insisted that the incentives granted under the NLNG Act were not meant to be and cannot be in perpetuity. While admitting that the NLNG Act confers some tax holidays on the NLNG, the agency cited section two of the NLNG Act, which has an addendum, which limits the tax holiday of the company to 10 years or when the cumulative average sales price of liquefied natural gas reaches $3million in metric British Thermal Units (MMBTU) as calculated in the first schedule to the Act, whichever comes first.
It was however gathered that as at January 2004, the New York Mercantile Exchange indicated that the price of gas stood at $9 per MMBTU.
Experts have argued that from 1989 to 2004 is 15 years, which is five years above the statutory tax holiday of 10 years as provided by the NLNG Act.
A stakeholder, who spoke on the condition of anonymity also said: “The National Shipping Policy Act, which the NLNG’s wholly-owned subsidiary, Bonny Gas Transport Limited and other chartered third party vessels are specifically exempted from the tax holiday by virtue of the fact that section six (10) of the NLNG Act has been repealed by the NIMASA Act, 2007, which specifically provides that the agency should be funded from the three percent of gross freight from all international inbound and outbound cargo from ships or shipping companies operating in Nigeria”
He had noted that the NIMASA Act makes no exemption of who pays the three per cent levy, arguing that the legislation is clear on who is liable to that section as it specifies ships and shipping companies, which the NLNG subsidiary falls under.
“We note that NLNG has started paying tax to the Federal Inland Revenue Service while refusing to pay the three per cent gross of freight and the two per cent Cabotage Vessel levy due to NIMASA. NLNG cannot choose which Nigeria’s laws to obey or which taxes to pay. NLNG’s refusal to pay the accumulated three per cent gross of freight and Cabotage levy over the years has drastically reduced NIMASA’s revenue with which to carry out its core mandates of shipping development as well as maritime safety and security”, the stakeholder further argued
It was further gathered that both the NLNG and NIMASA had over the years been on this issue without much success. This may have also informed NIMASA’s resolve to impound NLNG’s gas vessels until all the accumulated arrears had been paid.
Available records show that in 1997, the office of the Head of State and Commander in Chief of the Federal Republic through the Federal Ministry of Transport had written the management of the gas company on the need to comply with the nation’s laws, among several others.
It was however gathered then that NLNG has so far paid $160 million (N25.6bn) to NIMASA in two installments of $140 million and $20 million respectively. This was part of the out-of –court settlement in the contempt suit brought against NIMASA by the NLNG, which also informed the lifting of detention order on the company’s vessels to lift gas for export.
Stakeholders, who commented on the lingering legal battle, have observed that the whole issue revolves around obeying the nation’s extant laws. The stakeholders argue that NLNG as a responsible corporate citizen should obey the laws of the land.
The Director General of the agency, Dr. Dakuku Peterside, had hailed the judgment, saying it has once again reaffirmed the peoples’ confidence in the nation’s judiciary.
While reacting to the judgment, Peterside said NIMASA remains a law abiding corporate citizen and will continue to work closely with the judiciary in matters that need clarification and interpretation.
He said: “This judgment has further shown that the judiciary is unbiased and remains a beacon of hope for Nigerians. On our part as a responsible government agency, we will continue to work closely with the judiciary and other stakeholders to ensure that we realise our mandate of creating a robust maritime industry in line with global best practice.
“NIMASA and NLNG are neither foes nor competitors. We are corporate cousins working together for the common good of our great country. Judgments like this only serve to strengthen our institutions and ensure greater bonding”.
Stakeholders are however expectant and anxiously await the outcome of the re-trial of this matter by the Federal High Court as ordered by the appellate court. This is given that depending on where the pendulum swings, this case will redefine the business environment in Nigeria’s shipping industry, as it will completely eliminate the culture of impunity, especially in terms of evading payment of statutory fees and levies to the Federal Government and its agencies.