Incentives
by the Government cannot be over emphasize In Nigerian today the Government has
put in place a number of investment incentives in order to insure the
stimulation of private sector investment from within and outside the country.
While some of these incentives cover all sectors, others are limited to some
specific sectors. The nature and application of these incentives have been
considerably simplified. The incentives include:
(i) COMPANIES
INCOME TAX
The
Companies Income Tax Act has been amended in order to encourage potential and
existing investors and entrepreneurs. The current rate in all sectors, except
for petroleum, is 30 percent.
(ii) PIONEER
STATUS
The
grant of Pioneer Status to an industry is aimed at enabling the industry
concerned to make a reasonable level of profit within its formative years. The
profit so made is expected to be ploughed back into the business.
Pioneer
status takes the form of five-years tax holiday to qualified or (eligible)
industries anywhere in the Federation and seven-year tax holiday in respect of
industries located in economically disadvantaged local government area of the
Federation. At the moment, there is a list of 69 approved industries declared
pioneer industries, which can benefit from tax holiday.
To
qualify, a joint venture company or a wholly foreign-owned company must have
incurred a capital expenditure of not less than five million Naira whilst that
of qualified indigenous company should not be less than N150,000.00. In addition, an application in respect of Pioneer
Status must be submitted within one year the applicant company starts
commercial production otherwise the application will be time-barred.
(iii) TAX RELIEF FOR RESEARCH AND DEVELOPMENT
Industrial establishments are expected to
engage in Research and Development (R&D) for the improvement of their
processes and products. Up to 120
per-cent of expenses on (R&D) are tax deductible, provided that such
R&D activities are carried out in Nigeria and are connected with the
business from which income or profits is derived. Also, for the purpose of R&D on Local raw
materials, 140 per-cent of expenses are allowed. Where the research is long-term, it will be
regarded as a capital expenditure and will be written off against profit. The result of such research could be patented
and protected in accordance with internationally accepted Industrial Property
Rights.
(iv)
CAPITAL ALLOWANCES
The current rates applicable in
respect of capital allowances are:
S/N
|
Qualifying Expenditure in Respect of:-
|
Initial
Allowance (%)
|
Annual
Allowance (%)
|
i)
|
Building Expenditure
|
5
|
10 per Annum
|
Ii)
|
Industrial Building Expenditure
|
15
|
10
|
Iii)
|
Mining
|
20
|
0
|
Iv)
|
Plant excluding furniture and fittings
|
20
|
10
|
v)
|
Furniture and Fittings
|
15
|
10
|
Vi)
|
Motor Vehicle Expenditure
|
25
|
20
|
Vii)
|
Plantation equipment expenditure
|
20
|
33
|
Viii)
|
Housing Estate Expenditure
|
20
|
10
|
Ix)
|
Ranching and Plantation Expenditure
|
25
|
15
|
x)
|
Research and Development Expenditure
|
25
|
12
|
Xi)
|
Public Transportation Motor Vehicle
|
30
|
-
|
The
amount of capital allowance to be enjoyed in any year of assessment is
restricted in Nigeria to 75% of assessable profit in case of manufacturing
companies and 66% in case of others, except such companies in agro-allied
industries that are not affected by this restriction. If leased assets are used in agro-allied
ventures, the full (100%) capital allowance claimed will be granted. Moreover, where the leased assets are
agricultural plants and equipment, there will be an additional investment
allowance of 10% on such expenditure.
(v) IN-PLANT
TRAINING
This
is applicable to industrial establishments that have set up in plant training
facilities. Such industries enjoy a two
percent tax concession for a period of five years.
(vi) INVESTMENT
IN INFRASTRUCTURE
This
is a form of incentive granted to industries that provide facilities that
ordinarily, should have been provided by government. Such facilities include access roads, pipe
borne water and electricity. Twenty
percent (20%) of the cost of providing these infrastructural facilities, where
they do not exist, is tax deductible.
(vii) INVESTMENT IN ECONOMICALLY
DISADVANTAGED AREAS
Without
prejudice to the provision of the pioneer status enabling law, a pioneer
industry sited in economically disadvantaged Local Government Area is entitled
to 100% tax holiday for seven years and an additional 5% capital depreciation
allowance over and above the initial capital depreciation allowance.
(viii) LABOR INTENSIVE MODE OF PRODUCTION
Industries
with high labor/capital ratio are entitled to tax concessions. These are industries with plants, equipment
and machinery, which essentially are operated with minimal automation. Where there is automation, such automation
should not be more than one process in the course of production. The rate is graduated in such a way that an
industry employing 1,000 persons or more will enjoy 15 percent tax concession,
while an industry employing 200 will enjoy 7 percent and those employing 100
will enjoy 6 percent and so on.
(ix) LOCAL
VALUE ADDED
10%
tax concession for five (5) years. This
applies essentially to engineering industries, where some finished imported
products serves as inputs. The
concession is aimed at encouraging local fabrication rather than the mere
assembly of completely knocked down parts.
(x) RE-INVESTMENT
ALLOWANCE
This
incentive is granted to companies engaged in manufacturing which incur
qualifying capital expenditure for the purposes of approved expansion,
etc. the incentive is in the form of a
generalized allowance of capital expenditure incurred by companies for the
following:-
·
Expansion of
production capacity
·
Modernization of
production facilities
·
Diversification
into related products
(xi) MINIMUM
LOCAL RAW MATERIALS UTILIZATION
A
tax credit of 20% is granted for five years to industries that attain the
minimum level of local raw material sourcing and utilization. The minimum levels of local raw materials
sourcing and utilization by sectors are: -
Agro-allied
- 70%
Engineering
- 60%
Chemicals - 60%
Petrochemicals
- 70%
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