Reformed pioneer status incentive in Nigeria: Any contradiction to tax revenue drive?

The Federal Government of Nigeria recently approved the eligibility of 27 additional industries for possible grant of pioneer status incentive (PSI). This move is coming on the heels of the National Economic Recovery and Growth Plan (ERGP), which aims to stimulate and strengthen economic growth by boosting the level of economic participation of certain key industries.

PSI is governed by the provisions of Industrial Development (Income Tax Relief) Act (IDITRA or the Act) and administered by the Nigerian Investment Promotion Commission (NIPC). The incentive is granted for an initial period of 3 years and can be extended for an additional 1 year or up to 2 years subject to meeting certain eligibility criteria.

In 2015, the Federal Government (FG) suspended the grant of PSI in order to carry out a comprehensive review of the incentive scheme due to perceived abuse, inefficiencies and revenue leakages. The result of this review is a reformed PSI framework with wider coverage but more stringent conditions. The reformed PSI framework, which includes a new Application Guidelines (the Guidelines) echoes the government’s agenda for economic repositioning of the country. This article examines key highlights of the reformed PSI and the likely implications for businesses and other stakeholders.

Amendment to the list of eligible industries for PSI and timeframe for implementation of changes

The reformed PSI framework brings to the fore, an additional list of 27 approved industries thus bringing the total number of pioneer industries to 71 from the erstwhile list of 44 industries. This move is clearly complementary to FG’s ERGP.
The Guidelines also provide that the list of pioneer industries be reviewed at most every two years, with additions taking immediate effect, while deletions, will become effective only after three years of approval.

Inclusion of seemingly superfluous items

Companies involved in mining activities already have exemptions under the Companies Income Tax Act and the Nigerian Minerals and Mining Act (NMMA) and these exemptions are similar to the reliefs granted under PSI. Thus, the inclusion of “mining and processing of coal” as a pioneer activity appears superfluous. Understandably, there are other reliefs under the PSI that are not be covered by these other laws.

A major concern is the potential regulatory overlap that may arise from uncertainty as to the intentions of Government for granting similar reliefs under multiple pieces of legislation. Presently, the incentives on mining (include tax holiday) are granted in two different pieces of legislation. Taxpayers could be tempted (and rightly so) to try to claim reliefs under the two separate but similar incentive schemes (provided they meet underlying criteria). In this regard, would taxpayers be entitled to claim reliefs under the two incentive regimes – e.g. must the tax relief period run concurrently or would a consecutive arrangement be allowed?

Alternatively, the inclusion of mining on the list of eligible industries may be deemed to be complementary to the tax relief provided for under the NMMA or a reinforcement of the provisions of the NMMA and not as a separate incentive. A clarification of the intention here would not be out of place.

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