The Federal Executive Council at its meeting on Thursday, 26 October 2017, approved the establishment of Road Trust Fund (RTF or the Scheme). RTF is conceptualized as a public private partnership (PPP) initiative by Federal Ministry of Finance (FMF) and Federal Ministry of Power, Works and Housing (FMPWH). The aim is to incentivize private sector participation in development of Federal road infrastructure through a tax credit scheme.

RTF is a revision of the infrastructure tax relief (ITR) incentive under the erstwhile Companies Income Tax (Exemption of Profits) Order, 2012. ITR granted companies that incurred expenditure of public nature (including road construction), tax relief of 30% of the cost of incurred on providing the infrastructure. The relief is enjoyed via deduction from the income tax of the company.

Unlike ITR, RTF will operate under a collective model to mobilize private capital from companies which will be used to undertake road projects through stand-alone collective infrastructure funds using a special purpose vehicle. It will also involve financial intermediaries who are expected to promote RTF Projects and solicit for funds from interested companies. The design and cost of the roads will be approved by the FMPWH and also certified by the Bureau of Public Procurement (BPP).

Expected benefits for companies who take advantage of the Scheme include:

  • 100% recovery of costs incurred on road infrastructure as tax credit against total tax payable over a three-year period
  • Accelerated depreciation to enable cost recovery in 3 years rather than 4 years for standard assets
  • Ability to intervene in roads critical to a company's business

Some of the benefits of the Scheme to the Federal Government and country include:

  • Increased funds for road development and accelerated road provision across the nation
  • Alternative funding to the government for road infrastructure development which will reduce pressure on the Federal Budget
  • Efficient delivery of road projects and reduction of project costs

Although, it is clear that the objective of the Federal Government is to reduce budgetary pressures by increasing private partnership in the development of road infrastructure, a number of details regarding how the Scheme will be implemented needs to be clearly spelt out.  For instance, it is unclear how long the Scheme will be available, how this will affect roads owned by State Governments and what will happen where a company's tax payable for the three-year period is lower than the cost contributed to the fund or amount recoverable. Therefore, efforts must be channeled toward ensuring that the details, expectations and benefits of the Scheme are clearly documented to ensure transparency and prevent abuse. In this regard, the FMF is expected to release a detailed guideline on the new Scheme within the next 30 days.

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.