The federal government has commenced sensitisation of Road trust Fund recently introduced by the federal government as a source of revenue generation. Below is highlight of some explanations being made by the government on the trust fund.
What is a Road Trust Fund?
The Road Trust Fund (RTF) is being set up to facilitate and incentivise private sector involvement in the provision of Nigeria’s Federal road infrastructure. It 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. This will complement Federal Government’s budgetary allocation to roads.
What are the benefits of the Road Trust Fund?
- Increases funds available for road development and accelerates road provision across the nation.
- Reduces pressure on the Federal Budget by allowing private engagement.
- Allows for cost reduction by providing a new benchmark in road costing. Private sector participation in what was previously a Federal Government monopoly will create more efficient delivery of road projects. Better negotiation and the promise of prompt payment to contractors, is expected to materially reduce project costs.
- Provides alternate funding to the Government for road infrastructure development.
- Creates a platform for collaboration among private sector players as well as between private sector and Government.
- Encourages co-operation in business districts affected by poor road infrastructure which will enhance output and reduce business operating costs.
- Allows businesses to direct funds that would otherwise have been ‘tax Naira’ into much needed areas of infrastructure.
Why is the Government focusing on roads?
Federal roads are critical in unlocking socio-economic development. While they account for just 17% of the total national road network, Federal roads carry more than 80% of national vehicular and freight traffic. (Nigeria’s road network consists of 200,000Km of which N33, 000km are Federal Roads according to the Ministry of Power, Works and Housing).
The deficit in roads is so large that there is a need to mobilise additional funding sources.
How does the Road Trust Fund work?
The Road Trust Fund is a revision of the existing infrastructure tax relief scheme that allows for tax relief to companies that incur expenditure on public infrastructure. To date, just two companies have been able to take advantage of this provision. The reason being that few companies are large enough to solely undertake road projects. The RTF, being a collective model, can mobilise funds from a range of tax paying companies, irrespective of their location or sector. RTF is it therefore, expected to mobilise significant capital into road provision.
RTF uses a collective model to mobilise private capital from companies of all sizes to undertake road projects through a series of Road Trust Funds. Each Fund will be a stand-alone Collective Infrastructure Fund (CIF) using a Special Purpose Vehicle (SPV).
We have already consulted with the private sector in the development of the RTF and some companies have already identified roads they wish to reconstruct and are organising their funding. However, this scheme is designed such that Financial Intermediaries will be promoting Road Trust Fund projects and soliciting commitments from interested companies.
Why would a private company want to participate in this?
Private sector participation is being incentivised through a Tax Credit Scheme that enables all participating companies to claim tax relief based on the amount of capital contribution (on a pro-rata basis).
What are the benefits of the Tax Credit Scheme to the private sector?
- Companies will be allowed to recover 100% of costs incurred on road infrastructure as a tax credit against total tax payable (including up to 10% for cost of funds);
- Accelerated depreciation to enable recovery in 3 years rather than 4 years for standard assets; and
- Ability to directly intervene in roads that are critical to their businesses which drives competitiveness.
Are there special incentives for building roads in economically disadvantaged areas?
Yes. The relief allows for cost recovery within a single year instead of 3 years for economically disadvantaged areas. We are encouraging and facilitating investment across all areas of Nigeria to achieve inclusive economic growth.
Would the scheme negatively affect Government revenues?
No. The effect of this scheme will be revenue neutral. In addition to the fact that we are already seeing improved performance in our tax receipts by improving tax compliance and blocking loopholes, we are proposing a cap on cost recovery to a maximum of 50% of tax payable by each participant in any year of assessment. This means that in any given year of assessment for tax purposes, at least 50% of total tax payable will be remitted.
Currently, road maintenance puts a major strain on budgetary resources, has this been considered?
Reducing budgetary pressure is a major advantage of the fund. Participants are required to guarantee the road for 5 years beyond maintenance.
Will the Roads be tolled?
Once the roads are completed they are handed over to the Federal Government who may decide to toll the roads in accordance with the National Tolling Policy.
What is the role of the Ministry of Power Works and Housing?
The Ministry is responsible for approving the road designs, monitoring all approved Road Trust Fund Projects by managing costs and timelines as well as ensuring that equal development across Nigeria by rebalancing the Federal budget, where necessary.
How does Government ensure costs are not inflated?
All costs and contractors will be scrutinised and approved by the Bureau of Public Procurement in line with legal requirements. This will ensure that costs are not inflated and that unqualified contractors are not used on the projects.
Would further information be provided to the private sector?
Yes. The Ministry of Finance will develop detailed Guidance Notes on the Provisions of the new Infrastructure Tax Incentive within the next 30-days.