Effects of tax and Corporate Social Responsibility

Effects of tax and Corporate Social Responsibility

Abstract

In the Nigerian society, Corporate Social Responsibilities [CSR] has been a highly contemporary and contextual issue to all stakeholders including the government, the corporate organization itself, and the general public. The public contended that the payment of taxes and the fulfillment of other civic rights are enough grounds to have the liberty to take back from the society in terms of CSR undertaken by other stakeholders. Some ten year ago, what characterized the Nigerian society was fragrant pollution of the air, of the water and of the environment. Most corporate organizations are concerned about what they can take out of the society, and de-emphasized the need to give back to the society [their host communities]. This attitude often renders the entire community uninhabitable. A case in mind is the Niger Delta area of Nigeria. This translated to negative integrity and reputation on the part of corporate identity as people perceived this as exploitation and greed for profitability and wealth maximization within a decaying economy of Nigeria. However, the general belief is that both business and society gain when firms actively strive to be socially responsible; that is, the business organizations gain in enhanced reputation, while society gains from the social projects executed by the business organization. Negative impacts of the oil industry are a major concern in Nigeria, threatening not only the health of local communities, but also the livelihoods they depend on. The following study examines the impacts of the oil industry in Nigeria and current measures to mitigate these impacts. It offers possible solutions that could be put forward by different stakeholders, including the Nigeria in particular, to reduce the negative impacts and enhance the contribution of the oil sector to sustainable development. The study focuses in particular on Nigeria and Niger Delta  largest oil producers, but is supplemented by insights from other SSA countries.

Specifically, the study examines a range of impacts, including the environmental, health-related and social effects of oil spills and gas flares; the employment opportunities offered and the wider economic implications of the sector; to what extent the oil industry has contributed to conflict in oil-producing regions, and the extent and consequences of oil theft. It goes on to review current efforts to mitigate some of these impacts through government regulations in oil-producing and importing countries, community engagement, and international standards and initiatives. It also draws on experiences from other natural resources sectors to assess what can be learned with regard to regulating trade in resources from conflict areas or that are illegally sourced. The study concludes with a set of recommendations focusing on regulatory measures, technology solutions, partnership- building and Nigerian development assistance.

Introduction

At an earlier point in history, societal expectations from business organizations did not go beyond efficient resource allocation and its maximization. But today, it has changed and modern business must think beyond profit awareness of environmental and ethical issues. It means our society has become increasingly concerned that greater influence and progress by firms has not been accompanied by equal effort and desire in addressing important social issues including problems of poverty, drug abuse, crime, improper treatment of workers, faulty production output and environmental damage or pollution by the industries as it has overtime been reported in the media. It is therefore very essential for all to realize that public outcry for increased social responsibility will not disappear if business organizations fail to respond to the challenges these had posed for the society.

In view of the perceived information gap, it is therefore worthwhile collating and aggregating in a more organized manner, the contributions of Nigerian corporations [using banking and communications industries as a focus] to the well-being of the society. This is necessary if only to show, in a graphic and mathematical ways that the industries seriously identify with the aspirations of the communities and the general public. In the early years of this century, two Americans independently and without knowing of each other were among the first businessmen in the world’s history to initiate major community reforms.

Andrews Carnegie preached and financed the free public library. Julius Rosenwald fathered the country farm agent system and adopted the infant 4-H CLUBS. Carnegie was already retired from business and one of the world’s richest men. Rosenwald who had recently bought a near bankrupt mail order firm called Sear Roebuck and Company, was only beginning to build both his business and fortune.

The two held basically different philosophies. Carnegie believed that the sole purpose of being rich is to be a philanthropist, that is, the “social responsibility of wealth”. Rosenwald believed that you have to be able to do good to do well, that is, the “social responsibility of business”. J. Irwin miller of the Cummins Engine Co. Ltd in Columbus, Indiana, has systematically used corporate funds to create a healthy community which, at the same time is a direct, though intangible investment in a healthy environment for his company. Miller specifically aimed at endowing his small industrial town with the ‘quality of life’ that would attract to it the managerial and technical people on whom a big high-technology business depends.

Only if business and particularly Nigerian business learns that to do well it has to do good, can we hope to tackle the major challenges facing developing societies today. The economic realities ahead are such that ‘social needs’ can be financed increasingly only if their solution generates commensurate earning which precisely is what business is known for. We can actually say firms involved in Corporate Social Responsibility are actually not regretting because of the increase it has made on their sales leading to profit and how they have impacted the environment.

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Environmental Impact Assessment (EIA) and Sustainable Development in Contemporary Development Agenda.

The last two decades of the 20^th century has witnessed the emergence and steady ascendancy of sustainability as a new development paradigm. This new trend resulted in recasting environmental issues in the context of sustainable development. (Munasinghe, 1999). The driving forces have been the shift in paradigm from growth to sustainability and the attendant steady increase in understanding, acceptance, adjustment and implementation of  the concept of sustainable development. Consequently, since the 1990s, the concept and its practical implementation have been increasingly considered by policy makers to be one of the most critical tools of achieving a balance between economic, social and environmental objectives. According to (Angelson, Odd-Helge and Sunlaila, 1994; Carew-Reid et al, 1994; Munasinghe, 1993 and 1999) this has been the case in developed countries and most developing countries.

There are many definitions of sustainable development. However, many contemporary definitions focus on the holistic approach to planned change which takes into account, the consequences for future generations. Bruntland (1987) see sustainable development, as paths to human progress that meet the needs and aspirations of the present generation without compromising the ability of future generations to meet their needs. It also requires political reforms and more just and equitable distribution with and among nations. As rightly pointed out by Pearce and Warford (1980), sustainable development is a process in which natural resource base is not allowed to deteriorate.

They emphasized the hitherto unappreciated role of environmental quality and environmental inputs in the process of raising real income and the quality of life.

Environmental Impact Assessment according to Eugine (2005), is a technique for ensuring that the likely significant effects of new development on the environment are fully understood and taken into account before it is allowed to go ahead. It also describes the whole process by which information about the environmental effects of an industrial project is collected, assessed and taken into account by public authorities in reaching a decision on whether the proposed development should go ahead or not Environmental management professionals and exports in developing countries have an interest in getting to grips with a clear appreciation of the importance, significance, implication and benefits of promoting sustainable development through EIA (Nwafor, 2006). This is because EIA has become an avenue whereby the principles of sustainability can be integrated into the country’s development activities. One environmental expert, who has explored wide-ranging aspects of impact assessment and sustainable resource use, is (Smith 1997, 1989, 1990, 1993). Based on his experiences, he made a strong case for a redefinition of the role of environmental impact

assessment in order to enhance its capability as an instrument for achieving the goals of sustainable development (Smith, 1993).

Legal Regulations in the Nigerian Oil and Gas Industry

Several laws regulate the activities of the oil industry vis-à-vis, the environment. These include:

–         The Petroleum Act, Cap 350, LFN 1990 and its attendant regulations

–         The Oil in Navigable Waters Act Cap 331, LFN 1990 and its attendant regulations.

–         The Oil Terminal Dues Act Cap 339, LFN 1990.

–         The Associated Gas Re-Injection Act Cap 26 LFN 1990 and its attendant regulations

–         The Federal Environment Protection Agency Act Cap. 131 LFN 1990.

–         The Petroleum Act generally empowers the Minister in Section a – (1) (b) (iii) to make regulations for the prevention of pollution of water courses and the atmosphere. Accordingly the Petroleum Regulations 1969 contain provisions on environmental pollution. There is an omnibus provision on pollution in Regulation 25, which provides that:

The licensee or lessee shall adopt all practicable precautions including the provision of up-to-date equipment approved by the Director of Petroleum Resources to prevent pollution of inland waters, rivers, water courses, the territorial waters of Nigeria or the high seas by oil, mud or other fluid or substances which might contaminate the water, bank shore line which might cause harm or destruction to fresh water or marine life and where any such pollution occurs or has occurred, shall take prompt steps to control and if possible, end it.

The Federal Environmental Protection Agency Act was enacted in 1988, after a long gestation period of 12 years. It is the first Nigerian Statue to deal exclusively with the environment. The Act establishes the Federal Environmental Protection Agency, which is to be responsible for the protection of the Nigerian environment. Among others, the Act prohibits the discharge of hazardous substances (including crude oil) into the air or upon the land and the waters of Nigeria. Unlike the other legislation (which provide for only criminal sanction for its breach or the payment of compensation for damage consequent there to, as the case may be), this law provides for both criminal sanction and civil liability for its breach and consequent damage. Regarding civil liability, section 21 therefore categorically states that any person (particularly an oil company) who contravenes the prohibition of section 20 shall, in addition to the penalty specified in the section, be liable for: (a) the cost of removal thereof- including any costs which may be incurred by any Government body or agency in the restoration or replacement of actual resources damaged or destroyed as a result of the discharge and (b) costs of third parties in the form of reparation restoration, restitution or compensation as may be determined by the Agency from time to time.

However, such a person shall not be liable if he proves that the discharge was caused solely by a natural disaster or an act of war or by sabotage.

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Sustainable Development of the Niger Delta Region

Addressing the Niger Delta region’s many development challenges begins with using its vast oil wealth to create an environment in which the people can flourish. People of the area should be able to live valued and dignified lives, overcome poverty, enjoy a peaceful atmosphere and expect a sustainable environment. For development to be meaningful, people-centered and sustainable in the region, this paper proposes a six point human development agenda: promotion of peace as the foundation for development, make local governance effective and responsive to the needs of the people, promote social inclusion, access to social services, environmental sustainability to preserve the means of the people’s sustainable livelihoods and build sustainable partnerships for the advancement of human development in the region.

Diversification of the economy of the region from oil to the development of renewable resources especially agriculture, is vital for the transformation of the area. Fishing and agriculture are the major traditional occupations of the Niger Delta peoples. During the colonial era, forestry was introduced as the third major economic activity in the region. Today, agriculture, fishing and forestry still account for about 44 percent of employment. All the three economic activities have declined since the ascendancy of the oil industry. Rubber plantations that once covered thousands of hectares of land in Edo and Delta States were cleared as the oil boom took hold while many palm oil and cocoa plantations were abandoned and allowed to revert to bush. One major contemporary challenge facing the region’s economy may be how to revamp the rural economy by optimizing and modernizing agriculture as well as fishing. Oil wealth can be put to good use in this regard as the people of the region, would feel they have gained something substantial to make up for all the miseries associated with past neglect.

Individuals and communities in the Niger Delta Region that had suffered environmental damage from oil industry activities have the right to compensation. An injunction restraining the activities of an oil company is unlikely to be granted by any court because of the strategic importance of the oil industry. In this regard, the main law appears to be Section 36 of schedule I of the Petroleum Act, 1969. This provision provides for the payment of “fair” and “adequate” compensation. Other provisions are Regulations 21 and 23 of the Petroleum Regulations, 1969 which speaks of “fair” and “adequate” compensation respectively. These terms are highly subjective and are not defined within any enactment. Section 36 schedule I of the Act and Regulation 21 refer to unmentioned surface rights and to specified plants. However, so many rights and interests may be affected, such as those pertaining to fish pounds, fish farms, water ways, canals, wild life sanctuaries and so on. In some states, there are edicts dealing with the procedure and quantum of compensation. An example is the Rivers State Minimum Crop Compensation Rates Edict 1973. The process of arriving at compensation figures is predicated on negotiations by the parties affected. Ways of controlling environmental hazards have been clearly stated in the various laws and decrees of 1967, 1969 and 1969. Efforts should be focused on implementing these laws and decrees as a means of achieving development for the region. Regulation for Environmental Impact Assessment (EIA) Decree No. 86 of 1992, which makes it mandatory for development projects to put in place appropriate mitigative measures, to address identified significant environmental problems, should be monitored by the government and ensure strict compliance. In compliance, the oil prospecting companies should consult with affected communities, to conduct environmental impact assessment to identify significant impacts of its intended operation projects in the area. The idea is to provide mitigating remedial assistance to correct identifiable negative impact.

The politics and dynamics of revenue allocation have also manifested in attempts to address the peculiar development challenges of the Niger Delta as an oil producing region. The idea was that revenue should be shared,

in proportion to the contribution that each region made to the common purse or central government. Derivation became the only criterion used to allocate revenues among the regions in the 1948-1949 and 1951-1952 fiscal years. In the period shortly before independence in 1960, the disparity in allocation largely reflected the degrees of enterprises and levels of production in the regions. This meant that by merely looking at the levels of allocations, one could easily discern the regions with high levels of economic activities in areas such as cash crops production (e.g., Cocoa, rubber, palm oil, cotton, hides and skins, groundnuts, etc), earnings from export and excise duties and so on. Between 1946 and 1960, the derivation principle was maintained at 50 per cent till 1967, when the Nigerian civil war started. The 1960 and 1963 constitutions affirmed the 50 percent rate as reflected in Section 140 of both documents. The 50 percent derivation formula changed in varying ways during the military and civilian administration eras to mere 3 per cent and recently to 13 per cent now that oil is the mainstay of the Nigerian economy.

The Three Components of Sustainability – The Triple Bottom Line

Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs (World Commission on Environmental and Development, 1987) The triple bottom line is considering that companies do only have one objective, profitability, but that they also have objectives of adding environmental and social value to society (Crane and Matten, 2004). The concept of sustainability is generally regarded as having emerged from the environmental perspective is about how to manage physical resources so that they are conserved for the future. Therefore, economic sustainability is about the economic performance of the organization itself. A broader concept of economic sustainability includes the company’s impact on the economic framework in which it is embedded.

The development of the social perspective has not developed as fast as the environmental and economic perspectives. The key issue in the social perspective on sustainability is that of social justice. It can be seen from above that economic and environmental sustainability involved in the concept of externalities is mostly engendered in the importance placed by comparatives in the concept of social responsibilities.

The Nigeria Foundation for Quality Management [EFQM] defines CSR as “a whole range of fundamentals that organizations are expected to acknowledge and to reflect in their actions. It includes among other things respecting human rights, fair treatment of the workforce, customers and suppliers, being good corporate citizens of the communities in which they operate and conservation of natural environment”. These fundamentals are seen as not only morally and ethically desirable ends in themselves and as part of the organization’s philosophy; but also as key drivers in ensuring that society will allow the organization to survive in the long term, as society benefits from the organization’s activities and behavior” (The EFQM Framework For Social Responsibility, 2004).

CSR is the concept that an organization needs to consider the impact of their operations and business practices on not just the shareholders, but also its customers, suppliers, employees, members of the community it operates in, and even the environment. It is a way of saying thank you and expressing appreciation to all stakeholders in the business. It is a conscious effort to give back to the society in which the corporation has benefitted immensely.

 Definition of Corporate Social Responsibilities

There are a myriad of definitions of Corporate Social Responsibilities [CSR], each considered valuable in their own right and designed to fit the specific organization. The majority of definitions integrate the three dimensions to the concept, that is, economic, environmental and social dimensions. CSR had also been commonly described as “a demonstration of certain responsible behavior on the part of public and the private [government and business] sectors toward society and the environment”. Business for Social Responsibility (BSR), a leading Global Business partner, in a Forum held in 2006 defined CSR as achieving commercial success in ways that honors ethical values and respect people, communities, and the natural environment. For BSR, CSR also means addressing the legal, ethical, commercial and other expectations society has for business, and making decisions that fairly balance the claim of all key stakeholders. In its simplest terms, it is: “what you do”, “how you do it” “and when and what you say”. In this sense, CSR is viewed as a comprehensive set of policies, practices and programmes that are integrated into business operations, supply chain, and decision making processes throughout the company and wherever the company does businesses that are supported and rewarded by top management. It also includes responsibility for current and past actions as well as future impacts. The issues that represent a company’s CSR focus vary by business, size, sector and even geographical region. It is seen by leadership of companies as more than a collection of discrete practices or occasional gestures or initiatives motivated by marketing, public relations or other business benefits.

Also, the World Business Council on Sustainability Development, 1998 described CSR as “the continuing commitment by Business to behave ethically and contribute to economic development while improving thequality of life of the workforce and their families as well as of the local community and society at large”. “CSR is the concept that an enterprise is responsible or accountable for its impact on all relevant shareholders” [Union, 2006].

Concept of corporate social responsibilities in Nigeria

To be able to understand CSR from a Nigerian perspective it is of value to explore the drivers for, and the history and development of CSR in Nigeria. The World Business Council for sustainable Development has discussed CSR with business and non-business stake-holders in a number of countries in the world with the objective of understanding local perspectives better and to get different perceptions of what CSR should mean from a number of different societies. (http:www.cecodes.org.co).

One important finding in this study was that people were talking about the role of the private sector in relation to a social agenda and they saw that role as increasingly linked to the overall well-being of society. Therefore the

chosen priorities differed according to the perception of local needs. The key CSR issues identified in the study included Human rights, Employee rights, Environmental protection, Community involvement and Supplier relations. The book “Corporate Citizenship in Developing Countries” (Pedersen and Huniche, 2006) contains a chapter about revisiting Carroll’s CSR pyramid from a Nigerian perspective. Most of the research on Carroll’s CSR pyramid has been in an American context and in this report an attempt is made to look on how CSR manifests itself in a Nigerian context. In Nigeria, economic responsibility still get the most emphasis while philanthropy is given second highest priority, followed by legal and then ethical responsibilities.

METHODOLOGY

The research was conducted using both primary and secondary data which are descriptive and analytical, with more emphasis on the descriptive part. The study involves a guided approach to data collection of the population of study (officials and customers of the banks and communication industries specifically MTN Nigeria and GTBank Plc), using structured questionnaire sampling method and procedure to analyze the data.

Responses received focusing on a survey into the impact of corporate social responsibility in the banking industry and telecommunication industry was analyzed. It was further basically designed to analyse the impact, benefits, and contribution of Corporate Social Responsibility on/of/to economic and social development. The primary data sources specifically include administration of questionnaire, observations and personal interviews, while secondary sources rely heavily on internet records and information from the relevant sector of the banking system, books, journals, and publications from relevant authors. Primary Data were also obtained from schools, hospitals, non-governmental organizations, charitable homes etc. Correlation and regression analyses were used to test the hypothesis in order to determine the impacts.

Conclusion

In the light of the above discussions, it is obvious that this great deposit of oil and gas has become a mixed blessing for the people of the Niger Delta. They are denied the benefit of this wealth and exposed to devastating environmental pollution and degradation. For example, as at 2002, about N450 million worth of associated gas was being wasted by flaring daily. The annual loss is valued at N164 billion. Oil spillages have become recurrent and routine in the area. It is now well known that these spillages in combination with other toxic wastes and effluents dumped into the waters and land at every stage of oil exploration and exploitation, have destroyed farmlands, economic crops, water including groundwater resources, biodiversity etc. Furthermore, the people of the region are impoverished and marginalized due to the inequitable and defective federal system of government practiced by the Nigerian state.

All these devastating environmental impacts of oil exploration, exploitation and transportation, coupled with the many years of neglect and defective intervention policies have generated criminal activities and a condition of underdevelopment in this region. What the state defines as criminal is not necessarily criminal in the people’s interpretation. Vandalization of petroleum oil pipelines, abduction and kidnapping of expatriate personnel of multinational oil companies and the bunkering of crude oil in the creeks of the Niger Delta can be used to illustrate the prevailing obfuscation in the interpretive understanding of these crimes. Uprooted out of a once fertile farmstead, displaced by incessant oil spillages and desperate to survive against all odds, the Niger Delta youths begin to accentuate the scope of acceptable behavior into the realm of deviance and criminality. The youths see nothing wrong in militancy, vandalizing oil pipelines, kidnapping and abduction or bunkering for crude oil.

It is rather unfortunate that oil exploration in the Niger Delta is being carried out without regard to international health and safety standards or observed minimum levels of protection of the environment from chemical pollution in the air, land, rivers and water tables. Here lies the “tragedy of commons”. This theory was put forth by Garrett Hardin (1968). It especially talked about the misuse of public property and its effects on the environment and humans as elaborated about the Niger Delta situation. Garratt explained this theory with the help of his famous shepherd’s story. In it he stated that every shepherd is entitled to a pasture of land where he can allow his sheep to graze, but when he starts encroaching into another shepherds pasture, it has several effects. Firstly, the land, since it is over-grazed gets denuded and secondly, for want of food, the sheep begin to die. The solution to the Niger Delta crisis requires both a long and short term perspective as highlighted earlier in this article. In the short run, there should be a Marshal Development Plan for the region. Massive funding must be put on job creation through industrialization, using the more effective strategy of public private partnership.

Discussion of Findings

The analysis above explains the relationship between corporate social responsibility and firm’s profitability in Nigeria. The table revealed that the amount committed to social responsibility vary from one company to the other. The data further revealed that all the sample firms invested less than ten percent of their annual profit to social responsibility. However, the E-view analysis above depicts that negative relationship (-0.177424) exists between firm’s performance measure with profit after tax and investment in social responsibility. This implies that the slope of the estimate is in accordance with the a priori expectations, which shows that there is inverse relationship between the two variables (PAT and CSR).This implies that the more the profit recorded by firms in Nigeria the less they invest in corporate social responsibilities. This suggests that these organization survival and ability to make profit in the long run could be threatened as various stakeholder particularly there host communities could threaten their existence. This result conforms with evidence from Lopez, Garcia, and Rodriguez, (2007), carried out their study based on the Dow Jones Sustainability Index. The study uses a total sample of 110 firms from the period of 1998 to 2004 and analyzes the relevant accounting indicators. Accounting

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