Nigeria’s adverse tax on dividends scares investors

HARARE - The Daily News on Sunday can exclusively reveal that a meeting which was held between AirZim management and the fired employees on Thursday last week ended in a stalemate after workers turned down the package.

The airline, which was represented by its human resources officials and an independent consultant, refused to budge and stuck to its offer, saying it was in terms of Section 12(28:1) of the Labour Act.

The troubled State-run airline, which dismissed the 200 workers on three months’ notice, said it was willing to pay retrenchment packages of at least two weeks’ salary for every year served.

Officials from the National Employment Council (NEC) then walked out of the meeting after being told by AirZim management that they were not supposed to make any contributions to discussions, rendering them mere spectators.

Transport and Infrastructural Development minister Joram Gumbo said the funds to bankroll the retrenchment packages were available.

“The board approached me with a retrenchment request which I accepted given the troubles at Air Zimbabwe. I then set out to look for funds so that these people do not go emptyhanded. I can confirm that the funds are now in place and the distribution will start soon,” Gumbo said.

He, however, declined to state the amount he raised and the source of the funds, referring further questions to AirZim board chair Chipo Dyanda.

Dyanda said: “I prefer not to discuss these matters through papers until the process is complete. I can only confirm the retrenchment is on course and a plan exists to deal with their packages.”

An ex-AirZim worker said: “There was a meeting with all the employees who were fired last week who are covered under NEC, but there was no progress in that meeting.

“AirZim is just offering two weeks for every year served and are not willing to budge. There are other outstanding issues that need to be ironed out.

“We asked them (management) about other pending dues such as outstanding salaries, pensions, housing allowances, bonuses and long service awards. “We also demanded that a letter be written to each of the affected employees stating respective individual packages and how they are going to be paid, which they said would be done in two weeks’ time,” the worker said. ABUJA - The issue is that of multiple taxation on individual investors is worrisome because whenever a company declares dividend, before it gets to you, they will deduct 10 percent withholding tax and this is after the government must have taxed the company’s profit.

If a company makes profit of N10 billion and declares a dividend. On that N10 billion profit, government will collect their tax.

Now, the owners of the company, who are the shareholders, when they are being paid dividend, the government will collect another 10 per cent withholding tax.

This amounts to 10 per cent taxation from the shareholders and another 10 per cent tax from the company.

So, when you look at it, the government collects 20 per cent tax from a particular company’s profit, that is if the company declares dividend. The load is too much and it is cheating.

The withholding tax was formerly five per cent before the era of General Ibrahim Babangida, but it skyrocketed from five per cent to 10 per cent in the era of VAT and other multiple taxation.

This is why you have accumulation of deferred tax in companies’ books.

Many of these companies have huge amount of deferred tax that they will pay one day. These are extra loads on the companies themselves. It is not fair; it scares investors away.

How do you think that this should be resolved? Government should look for incentives to encourage foreign and local investors by bringing down withholding tax and tax on companies’ profit back to five per cent each. Government should think of ways of encouraging investors to come back to the equities market.

In some countries, companies are given up to three to five years tax moratorium. I was an audit committee member in Secure Electronic Technology Plc.

Their business is gambling and government during Olusegun Obasanjo’s tenure as president gave the company tax concession and the tax authority was still writing and demanding for tax from them.

Today, the matter is still in court with the tax authorities. 10 per cent tax on a company’s profit and 10 per cent withholding tax on dividend is a lot of money, it is too much.

Another thing is that some companies even deduct the withholding tax without remitting them. This is a matter of corruption in tax system in this country.

If the government wants the capital market to come back to where it was, the tax should be slashed down to five per cent.

If this is done, local investors will come; they will plough the money back into the market and the market will continue to grow.

Companies themselves will plough the money back into their operation and they will continue to grow. How do you think investors confidence could be retained in the stock market?

The Securities and Exchange Commission should be more stringent in enforcement of market rules.

Stockbrokers, who still engage in one market infraction or the other should have their licences revoked.

A situation where a stockbroker will defraud an investors and is still allowed to operate without appropriate sanction meted on them discourages investors.