Monday, April 02, 2018 10.07AM / Proshare Research & Investor Services
The recent financials declared by Dangote Cement refers. DANGCEM’S income tax expense of N85.34bn is still subject to restatement in the future just like they did in 2016. The note below the table explains further.
The company enjoys some tax holiday (pioneer status) on some of its production lines which has expired. They have applied for an extension for additional two (2) years from the Nigerian Investment Promotion Council (NIPC) and they are optimistic that they will be granted. Once the approval comes in. the tax expense will be re-adjusted in line with the approved tax holiday. Thus, there is a possibility of reduction.
Notes 14- Income taxes
**In prior years, the company determined its tax charge on profits earned from Ibese production lines 3 & 4 and Obajana production line 4 on the basis that these product lines were entitled to a tax holiday under the Pioneer Status Incentive. With reference to disclosures in note 4.1.2, the tax charge has been re-stated for the 2016 and 2015 financial years and this has resulted in an increase in tax as shown above. In addition, the interest reversal as detailed in note 10 resulted in the 2016 Company only tax being reduced by N1.2billion resulting in the net increase of N42.6 billion shown above.
RECALL: Deloitte – Key Audit Matter
Tax liabilities expected to be on tax holiday (Pioneer)
“The Ibese production lines 1&2 and Obajana production line 3 enjoyed pioneer holidays for three years which expired on 31 December 2014 and 31 December 2015 respectively.
Application for extension for additional two (2) years was submitted to the Nigerian Investment Promotion Council (NIPC) upon expiry. No approval has been granted for these Applications; hence the tax charge has been determined on the income of those production lines but not recognized in the financial statements. This is in line with the Experts (Legal) opinion obtained by the company which indicates that the approval for the extension is not likely to be rejected since the Company has met all the requirements for the grant of such extension.
Ibese production lines 3&4 and the Obajana production line 4 are expansion projects requiring Pioneer Status Incentive (PSI) approval with effect from 1 February 2015 as applied by the company.
This approval has not been granted as at the reporting date which led to the judgment of the Directors to record the tax liabilities in the financial statements while continuing to pursue the approval of the Pioneer Applications.
As disclosed in notes 4.1.2 and 14 to the financial statements, the Directors have subjected the income from Ibese production lines 1 - 4 and Obajana production lines 3&4 to income tax and recognized/disclosed in the financial statements accordingly. This is considered a key audit matter due to the significance of the balance to the financial statements as a whole, combined with judgment associated with determining and recording/disclosing the tax liabilities on the income from those production lines.
We involved tax specialists to evaluate the recognition and measurement of the tax liabilities for the year. The procedures included
Based on existing regulations, the legal expert’s opinion and communications received from the government agency, we have evaluated the Directors’ assessment regarding the disclosure of related amounts for the extension projects in the financial statements and found them reasonable.
We are also in agreement with the approach applied by the company in recognizing the tax liabilities on the Expansion projects while they continue to pursue approval for the Pioneer certificate(s).”
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