By Eloghene Adaka, Esq.
Looking at the current economy of Nigeria, one would try to wonder why a country blessed with numerous natural resources and which should be a haven for potential investors would have such a poor economy.
The Nigerian government as a means to improve the ease of doing business in Nigeria and also make Nigeria attractive to investors has come up with tax reliefs and incentives which are available to companies and investors.
The principal legislation which is saddled with the responsibility of making guidelines as it relates to incentives for different sectors is the Nigerian Investment Promotion Commission (NIPC).
Section 30 of the NIPC grants NIPC power to make regulations for the implementation of the objectives for which NIPC was formed. Section 23 of the NIPC gives it the power to issue procedures for designating sectors of the Nigerian economy as priority areas for the purpose of receiving incentives.
In formulating incentives, the Nigerian government has put in place a number of considerations which include:
- Local content development;
- Support for infant industries;
- Encouragement of investment in industries which have potential multiplier effects on the growth of the economy, including but not limited to employment generation & manpower development;
4.Promotion of non-oil exports, with potential attendant positive impact on foreign exchange earnings.
Forms Of Incentives
In Nigeria, some of the various investment incentives provided under the relevant laws and regulations include pioneer status, tax credits, capital allowances, investment allowances, tax exemptions, duty drawback, subsidies, export expansion grants, export development funds, double taxation reliefs, and investment promotion and protection agreements, among others.
1) Bonus for Filing Returns on Time: A company which files returns within the time stipulated for filing is granted a bonus of one percent of the tax payable. See Section 56 of CITA
2) Labour Intensive Mode of Production: Tax concession is granted to industries with high labour/capital ratio. These involve industries with plants, equipment and machinery, which essentially are operated with minimal automation. The rate of tax concession here is graduated. For example, a company that employs 1000 persons or more enjoys 15% tax concessions; an industry employing 100 persons will enjoy only 6% tax concessions; those that employ 200 people will enjoy 7% of tax concessions.
3) Petroleum Investment Allowance: A company in Production Sharing Contract with the NNPC is entitled to a petroleum investment allowance – 50% of chargeable profit as provided in Section 22 of the PETROLEUM PROFITS TAX ACT.
4) Employment Tax Relief. A Company with minimum of 5 new employees that retains the employees for at least 2 years, would be entitled to an exemption from CITA of 5% of its assessable profits. Also, for any company, with a minimum of 10 employees out of which 6 are new graduates or those who had been looking for a job for 3 years after graduation, there is income tax relief of 50% of its assessable profits.
5) Investment Tax Credit: this is for Research and Development carried out in Nigeria. According to Sections 20, 22 (3) of the CITA, companies engaged in Research and Development activities for commercialisation are allowed 20% investment tax credit on their qualifying expenditure. Section 38 (1) of CITA states that a company which engages wholly in the fabrication of spare parts for local consumption and export shall be allowed 25% investment tax credit on its qualifying capital expenditure. A company which purchases a locally manufactured plant, machinery or equipment for use in its business shall be allowed 15% investment tax credit. See Section 38 (2) CITA.
Expenses incurred on research and development including the amount paid to the National Science and Technology Fund are allowed as tax deductible expenses. (See Section 20 CITA). Also, where a company buys a new machinery to replace an obsolete plant and machinery, there shall be allowed to that company, 15% investment tax credit. (See Section 26 of CITA).
6) Double Taxation Treaties Relief: a Nigerian company that has paid, or is liable to pay tax, proves that it has paid the tax in a Commonwealth or another country that has double taxation agreement with Nigeria, then, such a company will be entitled to relief from tax paid or payable by it. See Double Taxation Relief (Between the Federal Republic of Nigeria AND Canada, Pakistan, Belgium, France, Romania, Netherlands, United Kingdom, China, South Africa, Philippines, Czech and Slovakia. Spain. and a shipping and air transport DTA with Italy. (As provided in Sections 32-35 CITA.)
7) Tax Relief On Foreign Loan: Section 11(1) CITA provides for tax exemption/relief on foreign loans. However,
a. This must be approved by the Federal Ministry of Finance and Foreign Loan
b. The loan must not be less than N150,000.
c. The loan must be granted by a foreign company to any person carrying on trade, business, or profession in Nigeria.
d. If the loan is to be repaid after 10 years, the interest is exempted from tax.
e. If the loan is to be repaid between 5-10 years, then the interest accruing should be half of the chargeable tax which must be made within A MAXIMUM OF TWO years from the date of exportation.
8) Export Free Zone: A free trade zone is an area within which goods may be landed, handled, and re-exported freely. The purpose is to remove obstacles to trade and to permit quick turnaround of ships and planes. The profit of a 100% export-oriented undertaking established within and outside an Export Free Zone shall be exempt from tax for the first three consecutive assessment years. A government or private/public entity could partner to establish a zone with many different businesses operating from the zone.
9) Duty Drawback/Suspension Scheme: This incentive is to encourage importation of raw materials in Nigeria to be used in manufacturing goods for export. Importers of Materials used in the manufacture of exported goods may claim repayment of import duties earlier paid in respect of the materials—Export (Incentives and Miscellaneous Provisions) Act Cap. E19 L.F.N. 2004; Customs Duties (Dumped and Subsidised Goods) Act Cap. C48 L.F.N. 2004. The time limit in which a Duty Drawback application must be made is within a maximum of two years from the date of exportation. The Customs Duty Drawback Scheme/Regulation provides for the refund of import duties by companies in manufacturing on:
a. Raw materials including packaging materials used in manufacturing goods that are exported: 100% of import duty.
b. Paper used for the manufacture of goods supplied for educational purposes to educational establishments recognised by the Federal Adviser on Education: 100% of import duty.
c. Goods exported in the same state as that in which they were imported. Customs and Excise Management Actand Drawback (Customs) Regulations 1959.
10) Ecowas Trade Liberalisation Scheme: The scheme provides for trade liberalization among member countries. It involves total exemption of duties and taxes, free movement of products, adoption of a single currency, and the abolition of excise duty.
11) Rural Investment Allowance: Section 28 (b) CITA, Section 34 (1) CITA provide for graduated allowances for capital expenditure on such facilities as electricity, water, tarred road and telephone located at least 20 kilometres away from such facilities provided by the government. The rural investment allowance is tied to profits of the year in which the date of completion of the investment falls and should not be carried over to the next year.
Eloghene Adaka Esq is a weekly columnist on Legal Corner with NIGER DELTA TODAY (NDT). She can be reached at adakaelo@gmail.com for further clarification or questions on legal issues.
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