Fueling Business Growth in Nigeria: Tax Incentive and Government Grants

The Nigerian government has implemented several policies aimed at promoting business growth, attracting investments, and fostering economic development. Among these policies, tax incentives and grants play a vital role in encouraging entrepreneurship, supporting small and medium-sized enterprises (SMEs), and driving innovation. In this article, we will explore some of the key governmental policies in Nigeria that provide tax incentives and grants to businesses, highlighting their benefits and eligibility criteria. Some of the incentives includes Pioneer Status Incentive (PSI), Capital Gains Tax Exemptions, Investment Tax Credit, Export Expansion Grant (EEG), Agricultural Credit Guarantee Scheme Fund (ACGSF) and Small and Medium Enterprises Development Agency of Nigeria (SMEDAN). In this article we would look into the first  two incentives

Pioneer Status Incentive (PSI)

The Pioneer Status Incentive is a tax incentive scheme meant to stimulate investment in key industries for Nigeria’s economic growth. This initiative grants qualifying enterprises pioneer designation, which comes with a number of advantages. For starters, businesses are excused from paying income tax on profits for an initial period of up to five years. In addition, pioneering businesses can take advantage of accelerated capital allowances and dividend withholding tax advantages. Companies must fulfill specified requirements, such as operating in pioneer sectors, making significant investments, and positively contributing to the Nigerian economy, to qualify. Under the PSI(Pioneer Status Incentive (PSI):, eligible companies are granted pioneer status, which grants them certain tax benefits and exemptions.

Advantages Granted by the Pioneer Status Incentive (PSI)

• Tax holiday: Pioneer companies are entitled to a tax holiday for an initial period of up to five years. During this period, the company is exempted from paying income tax on its profits.
• Extension of tax holiday: In some cases, the pioneer status can be extended for an additional three years, subject to meeting certain conditions and criteria set by the Nigerian Investment Promotion Commission (NIPC).
• Capital allowances: Pioneer companies enjoy accelerated capital allowances, which allow them to deduct a higher percentage of their capital expenditure from taxable profits. This helps to reduce the tax liability of the company during the pioneer period and subsequent years.
• Dividend withholding tax exemption: Pioneer companies are exempted from paying dividend withholding tax on dividends distributed from pioneer profits during the pioneer period.

Key Criteria and Compliance Standards for Nigeria’s Pioneer Status Incentive

• Eligible Sectors: The PSI is available for companies operating in pioneer industries or sectors specified by the NIPC. These sectors may include manufacturing, solid minerals, agriculture, technology, tourism, and certain infrastructure projects. It is important for businesses to confirm their eligibility based on the current list of pioneer sectors defined by the NIPC.
• Application Process: Companies seeking pioneer status must apply to the NIPC with relevant information about their business activities, sector classification, investment plans, and economic impact. The application should be submitted before the commencement of commercial production or the introduction of the pioneer product or service.
• Substantial Investment: To be eligible for pioneer status, companies are required to make substantial investments in fixed assets within Nigeria. The NIPC sets minimum investment thresholds based on the sector and size of the business. The specific investment amount required may vary depending on the sector and the current guidelines provided by the NIPC.
• Local Content and Job Creation: Companies applying for pioneer status must demonstrate their commitment to promoting local content participation and job creation. This may include plans for technology transfer, skills development, employment of Nigerian citizens, and engagement with local suppliers and service providers.
• Compliance Reporting: Companies that have been granted pioneer status are required to comply with reporting obligations and provide periodic updates to the NIPC. This includes submitting annual reports on financial performance, employment figures, local content compliance, and other relevant information as requested by the NIPC.
• Compliance with Laws and Regulations: Pioneer status beneficiaries must comply with all relevant laws, regulations, and guidelines applicable to their operations. This includes tax compliance, environmental regulations, labor laws, and any specific regulations related to the industry or sector in which they operate.
• It is essential for businesses to maintain accurate records, documentation, and financial statements to demonstrate compliance with the conditions and requirements of the PSI. Non-compliance or failure to meet the obligations may result in the withdrawal of pioneer status and the loss of associated benefits.
• Companies seeking pioneer status should consult with the NIPC or seek professional advice to understand the specific conditions, compliance requirements, and reporting obligations that apply to their particular industry or sector. It is important to note that the eligibility criteria and guidelines may be subject to change, and staying updated with the latest information from the NIPC is crucial to ensure compliance with the PSI.

Capital Gains Tax Exemptions

The Nigerian government offers exemptions on capital gains tax to stimulate investment and encourage participation in the stock market. For instance, gains derived from the sale of shares in Nigerian companies are exempt from capital gains tax. This exemption aims to attract investors and facilitate the ease of raising capital through share issuance.

Key Aspects of Capital Gains Tax Exemptions in Nigeria

• Exemption on Sale of Shares: One significant capital gains tax exemption in Nigeria relates to the sale of shares. According to the Capital Gains Tax Act, gains derived from the sale of shares in a Nigerian company are exempt from capital gains tax. This exemption applies to both individuals and corporate entities selling shares in Nigerian companies.
• Conditions and Restrictions: To qualify for the capital gains tax exemption on the sale of shares, certain conditions and restrictions must be met. The shares must be listed on the Nigerian Stock Exchange (NSE) or any recognized securities exchange in Nigeria. Additionally, the shares must be held for a minimum period of two years before their sale to qualify for the exemption. If the shares are held for less than two years, the gains may be subject to capital gains tax.
• Other Capital Assets: It is important to note that while the exemption on capital gains tax primarily applies to the sale of shares, it may not extend to other capital assets. Gains from the sale of assets such as real estate, bonds, or other investments may still be subject to capital gains tax in Nigeria.
• Documentation and Compliance: To claim the capital gains tax exemption on the sale of shares, individuals or businesses must maintain proper documentation and comply with reporting requirements. This includes keeping records of the transactions, providing relevant supporting documents, and adhering to any reporting obligations set by the tax authorities.

Conclusion

The Nigerian government has implemented various tax incentives and grant programs to boost businesses, attract investments, and drive economic growth. Through schemes like the Pioneer Status Incentive, capital gains tax exemptions, investment tax credits, export expansion grants, agricultural credit guarantees, and SMEDAN grants, businesses are provided with opportunities to reduce their tax liabilities, access funding, and enhance their competitiveness. To take advantage of these policies, it is crucial for businesses to understand the eligibility criteria, comply with the guidelines, and stay updated with the latest information from relevant government agencies. By leveraging these governmental policies, businesses can thrive, contribute to Nigeria’s economy, and create sustainable growth.