We fully endorse the Federal Government’s plan to attract more investments into critical sectors of the economy with the reintroduction of the Pioneer Status Incentive (PSI). The scheme will help to create jobs and boost the economy. The PSI is a tax holiday granted to qualified industries operating anywhere in the country. It is designed to reduce the cost of doing business by providing corporate income tax relief to companies making investment in the industries designated as ‘pioneer’.
According to the Minister of Industry, Trade and Investment, Dr. Okechukwu Enelamah, the incentive is pursuant to the Industrial Development Income Tax Relief Act, No. 22 of 1971. Its reintroduction has been approved by the federal government. Its many benefits include: economic growth and diversification, industrial and sectoral development, employment skills and technology transfer, export development and import substitution.
The pioneer status scheme was placed under administrative suspension in September 2015 to enable comprehensive reforms, such as increased transparency, process efficiency and better articulation of expected economic benefits to help government measure its impact on the economy. The incentives include a five-year tax holiday for the benefitting industries, and a seven-year tax relief for companies located in economically ‘disadvantaged’ local government areas of the country. This is aimed at enabling companies operating in a designated pioneer industry to make significant profit in their formative years without having to pay corporate tax.
There are also guidelines for their operations to ensure that their impact is felt in the economy. Government has listed 27 industries that will benefit from this status. However, all the fees must be paid within the timeframe stipulated by the Nigeria Investment Promotion Commission (NIPC). Failure to promptly pay the fee will lead to a cancellation of the Pioneer Status Incentive certificate, removal of the company’s name from the list of beneficiaries and notification to the Federal Inland Revenue Service to collect due taxes for the unexpired period, as well as the period for which there was a default in the payment of fees.
The industries eligible for participation in the PSI are: Mining and processing of coal, processing and preservation of meat/ poultry products, and manufacturing of starches and starch products. Also listed are industries involved in the processing of cocoa, animal feed, tanning and leather dressing, footwear, luggage and handbags, manufacturers of household and personal hygiene paper products, paints, varnishes and printing ink. There are also companies involved in the manufacturing of plastic products and moulds, batteries, accumulators, steam generators, railway locomotives, wagons and rolling stock, machinery and machine tools. Others are those involved in metallurgy, food and beverage processing, waste treatment disposal, e-commerce, software development and publishing, motion pictures, video and television programme production and distribution, photography and music production. Also to benefit are real estate investors and mortgage-backed securities under the Investment and Security Act, as well as business processing/outsourcing.
This initiative will hopefully deepen and diversify the economy. Under normal circumstances, all Nigerian companies are expected to pay income tax on their profits, accruing in, derived from, brought into or received in the country. However, government sometimes grants tax waiver incentives to boost investments, as is to be done now under the PSI scheme.
An applicant for Pioneer Status must be a body corporate registered in Nigeria, and must have incurred capital expenditure of not less than N10m. But there will be a service charge of 2 percent based on estimated tax savings from the 5-year financial projections of the company. The amount will be paid direct to Nigeria Investment Promotion Commission (NIPC).
It is heartening that the government has reformed the guidelines. In the past, the Federal Inland Revenue Service (FIRS) used to question the eligibility of some companies that were granted pioneer status. The new guidelines should put an end to this. The scheme should, however, be properly managed to ensure that it is not abused. Altogether, the most potent key to economic recovery is investment. However, while adding new industries to the pioneer status list is welcome, it is not the silver bullet to get Nigeria out of recession. But, it is a bold step that should be complemented by investment-friendly measures such as stable power supply, security, adequate infrastructure and other regulations to boost the overall ease of doing business in the country. Nothing less will do.
