Four companies, two with foreign ownership, that deal in importation of electronic and household appliances have exploited a defective import tariff waiver policy of Nigerian government and special forex allocation to manufacturers by Central Bank of Nigeria (CBN) to make billions of naira through fraudulent claims.
One of the companies, Somotex Nigeria Limited, is a shadow business of an offshore company registered in British Virgin Islands, a well-known tax heaven. The other three companies are Sims Nigeria Limited, Fouani Nigeria Limited and Dee Kay Nigeria limited. These companies have exclusive dealership into the importation of global brands, such as LG and Samsung electronics.
A joint investigation by OrderPaperNG and The ICIR shows that while these companies enjoy the status and privilege accorded to manufacturers that import raw materials, they are mere traders. Nevertheless, they are given forex concessions at CBN rate for manufacturers. They also get duty waivers, normally given to manufacturers that import raw materials.
The import duty waivers involve Completely Knocked Down (CKD) and Semi Knocked Down (SKD) goods, a controversial policy that gives tax concessions to importers who are willing to import products in parts to be assembled locally in Nigeria. By this policy, government aims to create jobs through manufacturing as well as accelerate transfer of technologies. An initial investigation by OrderPaperNG published in July 2018 had exposed this import waiver fraud involving same companies which have continued according to impeccable sources, to engage in the scheme.
Those who import goods in CKD/SKD obtain tax waivers from the ministry of finance and pay lesser import tariff. Instead of the usual 20-35 per cent duty on such products, they pay just 5 per cent with the belief that the importers have assembling plants where they couple the items, and employ Nigerians and create opportunity for transfer of technology.
The federal government justifies these waivers based on the provisions of the Customs and Excise Tariff Act and the Finance Miscellaneous Act 39 of 1990, among other legal and administrative instruments. Import waivers are issued by the Ministry of Finance and implemented by the Customs Service.
But investigations show that the four companies import fully built products and still claim duty waivers as if they brought in CKD/SKD. Customs documents obtained by OrderPaperNg and also analysed with The ICIR revealed that the four electronic dealers defrauded Nigeria of over N25 billion in CKD/SKD waiver claims between 2010 and 2018.
THE PANAMA PAPERS LINK
Curiously, Somotex Nigeria Limited is owned by an offshore company, Conifer Holdings Limited, a company registered in British Virgin Islands with Mossack Fonseca as the agent.
A trove of papers leak from Mossack Fonseca, a Panama-based law firm, revealed astonishing web of individuals and businesses that hide their wealth in tax haven through shell companies. The gigantic leak obtained by the International Consortium of Investigative Journalists, ICIJ, became known as Panama Papers.
Conifer Holdings Limited was registered in British Virgin Islands in 1995. Two years later, the company incorporated Somotex in Nigeria with 99.9 per cent shares belonging to the offshore company. The individuals behind the offshore company – Ram Udharam Mohiani, Ramchand Mohinani Ashok, and Anil Ramchand Mohinani – are also three of the four directors of Somotex Nigeria Limited.
The fourth director, Nkiru Nzegwu-Danjuma, not associated with the offshore company, was not a shareholder in Somotex. Findings showed that Nkiru was the wife of Musa Danjuma, younger brother to Theophilus Danguma, former Nigerian Army chief of staff and Minister of Defense. Nkiru, a lawyer, died in 2016 at the age of 57 after protracted illness.
Last year, when OrderPaperNG contacted Somotex to respond to the official documents that revealed how the company’s false declaration of its imported products deprived Nigeria of hundreds of millions in revenue, the company threatened that it would take retaliatory action if the story was published.
But further digging into the company by The ICIR uncovered a mischief in its incorporation in Nigeria. While it appeared that Somotex had not broken Nigerian laws by being incorporated by an offshore company, the owners used the discredited Mossack Fonseca to register the parent company in British Virgin Islands, two years before incorporating Somotex in Nigeria.
Such obscure parent company in a tax heaven is usually used to engage in money laundering. However, Peter Ubani, a lawyer, said Somotex has to still operate under the Nigeria’s financial regulations despite being owned by an offshore company.
“Irrespective of the status of one of the offshore companies, the one in Nigeria is subject to the laws of the country. It is subject to the company income tax law, even if the majority ownership belongs to the offshore company. As long as it does business here, it will pay tax. It has to pay company income tax,” he explained.
But the problem, Ubani said, is that such offshore company can be used to hide the real owners of the company in Nigeria and launder money. “They shield their owners, and they can repatriate the profit offshore. The profit will not be subject to Nigeria laws. Sometimes they use it for slush fund, such as laundering.”
Frank TieTie, another lawyer, activist and executive director of Citizens Advocacy for Social and Economic Rights (CASER), said even the repatriation of profit by foreign company must be within the Nigerian regulations. “Section 54 of the company allied matters act makes it mandatory for any company, whether it’s a Nigeria company or not, to be registered in Nigeria before it commences business in Nigeria,” TieTie said, adding: “Repatriation of profit is subject to Nigeria law. Such law as Foreign Exchange Monitoring Act, and other financial laws are applicable to foreign ownership and other repatriation of legitimate proceeds.”
TieTie added that “cash inflow and outflow, must be monitored by the institutions such as EFCC, which oversees the Money Laundering Act. At that point, the concern to anyone who is worried about tax evasion should be in regard to illicit financial flow.”
TOP SECRETS ON ASSEMBLY PLANTS
On March 15, 2018, the chairman of the senate committee on customs and excise, Hope Uzodima, accused the importers of defrauding the government billions of naira through false declarations on CKD/SKD, adding that the companies had no assembling plants, a major criterion to qualify for the import duty waivers.
Uzodima said that during oversight visit to the supposed assembling plant of Somotex, his committee discovered that the so-called plant was just a warehouse.
When a reporter was first sent to the head office of Somotex in Lagos last October, he could not immediately ascertain whether the company had an assembling plant or warehouse as claimed by the senator. While there appeared to be lots of activities around the complex, the organisation refused to allow him entrance into the premises.
The receptionist claimed that everyone in the department that ought to give approval to receive a visitor into the purported assembling plant were on leave. After lengthy persuasion, a call was placed to the head of the legal team, Erhuanga Odion Erabai, who said that the company was not given enough notice before visiting. He said that the company could only welcome the visit the following week.
“This is not how things are done,” Erbai said. “You cannot just come in to our organization without informing us and be demanding for answers. This is a private firm. You have to give us enough advance notice and we will decide if we want to give you information or not.”
Yet on follow up visit to the company, the reporter was again denied access into the premises. Somotex imports brands such as Midea home appliances, Havells electricals, Bruhm home appliances, and Su Kam inverters and batteries.
The brands declined to respond to inquiries on whether their products are exported to Nigeria on CKD/SKD.
Although two staff of Somotex who spoke to the reporter said the company assembled television and other electronics. But there was no evidence of such activities during the two-time visit to the company.
Official documents show that Somotex had been importing fully built products and still claimed CKD. On January 6, 2014, the company imported twelve 40 feet containers of fully built television sets as CKD with Customs Reference C674 through the Apapa Port. It paid 5 per cent import tax of N17, 757,486.00, instead of 20 per cent for the consignment valued at N146.12 million. By claiming CKD on fully built television sets, Somotex made N24.6 million on that particular transaction.
Again on September 9, 2013, Somotex imported fully built television sets as CKD and paid 5 per cent import tariff, instead of 20 per cent, depriving Nigeria of N3, 614,809.27 in revenue.
The fraud of underpaying import duty for fully built products under the guise of CKD/SKD is dubbed “wrong classification” within Customs. Wrong or false classification occurs when the nature of the goods indicated in the manifest before shipment is different from what arrives in the country.
Billions in waivers to generate N15, 200 a month menial jobs
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