Road infrastructure is one basic and critical factor that shapes the face of development in every economy. Road networks provide access to employment, social, health and education services, which are vital to any development agenda.1

Despite the annual budgetary allocations for road construction in the country, a large portion of Nigerian roads are in deplorable conditions. It would appear that the government's budgetary revenue sources are insufficient to cater to the huge infrastructure gap in the country. This is not surprising as the Nigerian government finances its projects through three major sources which are oil revenue, taxation and debts. However, in light of the dwindling global oil prices and concerns regarding Nigeria's rising debt profile, the government has increased its focus on revenue from taxation.

Consequently, the Nigerian government has, over the years, considered it necessary to opt for varying forms of public private partnership (PPP) to accelerate road availability.

A PPP is a model of public finance initiative in which government leverages private financing to provide public goods. Undoubtedly, this model is backed by various policy documents and Acts including certain provisions in the Companies Income Tax (CIT) Act which offer additional tax benefits to companies that undertake certain infrastructure projects. The Federal Government also introduced the Infrastructure Tax Relief (ITR) in April 2012 via the Companies Income Tax (Exemption of Profits) Order, 2012. More recently, the Federal Government introduced the Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme ("The Scheme") via the Executive Order 007 in January 2019.

While the ITR was meant to be effective for five years and allowed companies to claim additional 30% of the cost incurred by them in providing public infrastructure as allowable deduction in computing CIT, the 2019 Scheme appears to be more robust. The new Scheme provides a platform for private companies to undertake the construction of eligible road infrastructure projects in exchange for the recovery of 100% and an uplift of such companies' project costs through a tax credit mechanism.

This newsletter discusses the relationship between road development and tax payments and further analyses essential provisions of the recent Order.

Relationship between Road Infrastructure and Tax

Given that tax remittances can only result from virile economic activities, governments around the world are constantly in pursuit of increased economic activities and productivity in their respective jurisdictions. One way to achieve the increase in productivity is through local production of goods and services as well as attraction of significant foreign investments. However, achieving industrialization and economic development requires several critical factors including infrastructural development such as roads.2 According to the World Bank, improving infrastructure is key to reducing poverty, increasing growth and achieving the Millennium Development Goals.3

In line with the foregoing, many governments around the world have adopted a number of infrastructural policies in achieving social and economic development and growth. For example, the Singaporean government undertook a number of initiatives within the past 40 years by offering tax breaks and a number of other incentives to companies to encourage private participation in government projects in order to tackle challenges relating to severe lack of infrastructure.4 Presently, Singapore has evolved into a thriving city and international business hub with sustainable economic growth as a result of its infrastructural developments.5

Similarly, the government of Peru devised a unique public investment mechanism called "Works for Taxes" in 2008. "Works for Taxes" allows private firms to "pay" a portion of their income taxes in advance in the form of public works. The public works include building road infrastructure and other government infrastructure. Approximately $1.25 billion was pledged or invested in 318 "Works for Taxes" projects between 2009 and 2017. "Works for Taxes" also recorded the participation of 82 private enterprises within the period. Although this mechanism faced a number of challenges, a key reason for the mechanism's success was the government's willingness to connect with the private sector, while regularly improving the processes and regulation of the mechanism based on private-sector feedback.6

In Nigeria, some provisions were included in the CIT Act with the aim of incentivizing private participation in government infrastructure projects. Specifically, Section 34 of the CIT Act provides for a rural investment allowance where a company incurs capital expenditure on the provision of certain infrastructural facilities such as electricity, water, tarred road or telephone. Also, Section 40 provides for an investment tax relief where a company has incurred an expenditure on certain infrastructural projects.

While Nigeria has witnessed increased infrastructural transformation in terms of building of more schools, roads, and telecommunication facilities in recent years, the state of the Country's infrastructure is still a far cry from what is expected when compared to other comparable economies of the world. Thus, the Federal Government introduced the ITR via the Companies Income Tax Act (Exemption of Profits) Order 2012. The Order, which elapsed in 2017, provided an opportunity for companies to claim additional 30% of the cost of providing completed public infrastructure/facilities as an allowable deduction in arriving at such company's assessable profits.

As a follow up to the ITR, the Federal Executive Council (FEC) approved the Road Trust Fund (RTF) Scheme in October 2017 with the aim of increasing private sector participation in the construction and rehabilitation of Federal roads in Nigeria by incentivizing investment through tax credit. Following detailed negotiations and relevant consultations with relevant parties, the RTF Scheme has now metamorphosed into the Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme ("The Scheme"). The Scheme, which was introduced in January 2019 via the Presidential Executive Order 007, provides a platform for companies to recover 100% and an uplift of the project cost incurred by them in the construction and refurbishment of eligible roads as tax credit against CIT payable.

We have provided below some highlights of the Executive Order.

Highlights of Executive Order 007

  • Overview of the Scheme

    The Scheme is a PPP intervention that aims at enabling the Federal Government of Nigeria to leverage private sector funding for the construction or refurbishment of eligible road infrastructure projects in Nigeria. The Scheme is to be in force for a period of 10 years and participants in the Scheme are entitled to utilize the total project cost they incur in the construction or refurbishment of any eligible road as a credit against CIT payable within the said period. However, the Scheme does not seem to be applicable to companies that pay Petroleum Profits Tax. The eligible roads are to be approved by the president and published in line with the provisions of the Executive Order.

    Although the Order clearly states that the Scheme is to be in force for a 10-year period and that the credit could be carried forward until fully utilised, it is uncertain whether companies that are unable to fully utilize their tax credits within the said period would be able to carry their tax credits forward after the 10-year period.

    Similarly, it is not clear from the Order whether companies will be able to utilize the tax credits in offsetting audit liabilities or carry the credits back for previous tax years. Thus, it is necessary for the Federal Government to issue additional clarification in this regard. It may not also be out of place for willing companies to approach the committee or relevant ministry or agency to seek clarification on grey areas.
  • Eligibility

    A company seeking to participate in the Scheme may only become eligible upon the provision of certain documents to the Road Infrastructure Refurbishment and Development Tax Credit Scheme Management Committee ("the Committee"). These documents include a written notification of interest in the construction and refurbishment of an identified road and a valid and current Tax Clearance Certificate. The Committee shall then recommend the eligibility of the Company to the Minister of Finance where it determines that the proposed road project is economically viable, cost efficient and can be completed within 12 to 48 months.

    However, the Order does not provide any information as to how the Committee would determine the viability, cost efficiency and the timing of the Project. It is important for the Federal Government to provide additional information in this regard to boost the public confidence in the transparency of the Scheme.
  • Road Infrastructure Tax Credit (RITC)

    Value of Credit
    • 100% of the Project cost incurred and a single uplift that is equivalent to the prevailing Central Bank of Nigeria (CBN)'s Monetary Policy Rate (MPR) plus 2% of the total project cost.
    • Given that the current MPR is 14%, the single uplift to be applied as a tax credit, in addition to the project cost, would amount to 16% of the total project cost.
    • "Project cost" means any expenditure wholly, reasonably, exclusively and necessarily incurred for the implementation of the Project.
    • The aggregate professional service fees admissible as part of Project cost is limited to not more than 1.25% of the cost of the road construction or refurbishment, where the cost of the construction or refurbishment is ₦10 billion or beyond.
    • Unutilised RITCs would be available to be carried forward by the participants until fully utilized.
    • A Participant may also elect to sell its tax credit as a security to any interested company.
    • If a participant is a part of a recognised group of companies, such participant may transfer its tax credit to any member of its group.
    Application process
    • Participants in the Scheme are expected to apply to the Committee for the RITC.
    • Upon approval by the Committee, the Federal Inland Revenue Service (FIRS) would issue an RITC Certificate to such participant on an annual basis.
    • The RITC to be utilized in any relevant year is limited to 50% of the CIT payable for that year of assessment.
    • However, the full RITC issued with respect to eligible roads in an economically disadvantaged area can be utilized in any year of assessment without the 50% limitation.
  • Administration

    The Order establishes the Road Infrastructure Refurbishment and Development Tax Credit Scheme Management Committee to implement and administer the Scheme. Some of the functions of the Committee include the publication of the list of approved eligible roads; review of applications for participation in the Scheme; issuance of contract award letters to Participants and periodic quality control inspection of approved projects.

    The Committee comprises the Minister of Finance as Chairman, the Minister of Works as Deputy Chairman and Permanent Secretary of the Ministry of Finance as the Secretary of the Committee.

    Asides from the foregoing, the Order is silent as to the procedure for appointment and removal of members of the committee. It is expected that the Federal Government would provide addition clarification in this regard.

In the light of the foregoing, companies with manufacturing entities, especially those within major industrial hubs can pool funds to participate in the Scheme for the benefit of their companies and the overall growth of the economy.


Road infrastructure is very important in any economy as it goes a long way to improving the ease of doing business in such jurisdictions. Improved and efficient infrastructures are achievable through increased government revenue in tax payments and PPPs.

Thus, the Nigerian Government should channel its increased tax revenues to the development of infrastructure. In addition, the government should build the right level of trust with the private sector to ensure the right level of participation in PPP schemes. Like in Peru, the government should consistently engage the private sector for feedback on PPP projects and constantly improve the implementation and regulation of such projects in order to ensure the overall success of such projects and ultimately the economic growth of the country.

Beyond road infrastructure, it is expected that government will review the policy and developmental road maps for other critical infrastructure needs including other means of transportation that would reduce pressure on our road network system. It is also advisable for companies that intend to participate in the Scheme to conduct relevant due diligence and seek professional advice to help maximize the value of the Scheme.



2. Sawada, Y. (2015). The Impacts of Infrastructure in Development: A Selective Survey. ADBI Working Paper 511.Tokyo: Asian Development Bank Institute.

3. World Bank. (2007). The World Bank Annual Report 2007, DC


5. Supra 4


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.