The Chairman of the Governing Council of the Nigerian Investment Promotion Commission (NIPC) in exercise of the powers conferred on the Commission by Section 30 of the NIPC Act just released pioneer status incentive regulations (attached for ease of reference). The Regulations are effective from Thursday, 30 January 2014. The Pioneer Status Incentive Regulations have other requirements apart from those in the Industrial Development (Income Tax Relief) Act for processing an application for Pioneer Status.
Highlights
ü A service charge of 2% based on estimated tax savings to be paid to the NIPC derived from a five-year financial projection.
ü The corporate body making such application must be registered in Nigeria and must have incurred capital expenditure of not less than ₦10,000,000.
ü The application form (NIPC Form 2) is now free (previously ₦40,000).
ü Relevant regulatory license to operate in the sector or business activity where applicable is now a requirement.
ü The non-refundable processing fee has now been increased from ₦100,000 to ₦200,000.
ü Where a company records losses in its projections, the service charge will be calculated on the higher of 0.5% of its net assets and 0.25% of its turnover.
Issues arising
ü The Regulations do not specifically provide details of what should be included in the computation of tax savings. It is obvious that companies’ income tax savings will be included but it is not clear whether the savings with respect to Education Tax and Withholding Tax on dividends to be distributed from profits earned during the pioneer period will be included.
ü It is not clear on how the five-year financial projections would be determined. The projections are therefore likely to be subject to applicants’ discretion who are then likely to be conservative in their estimates as the regulations do not make provision for any adjustments to be made if the projections differ significantly from estimates.
ü The minimum levy irrespective of profitability may lead to the affected companies being worse off than without the incentive.
ü It is unclear whether or not the FIRS will regard the service charge as a levy to be added back to pioneer profit/loss or as a tax to be disallowed in the computation of pioneer profit.
ü The Regulations do not address the controversial issue of pioneer status incentive to companies other than those subject to tax under the Companies Income Tax Act.
Conclusion
ü The service charge included in the Regulations is a likely to result in additional costs for obtaining a pioneer certificate
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Written by Eniola Abiodun
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