Tax incentives-in-nigeria- firs

IFUEKO OMOIGUI OKAURU. FCA, MFR, ACTI
EXECUTIVE CHAIRMAN,
FEDERAL INLAND REVENUE SERVICE;
CHAIRMAN, JOINT TAX BOARD
@
THE NIGERIA INVESTORS BUSINESS FORUM, BERNE
SWITZERLAND
20TH AND 21ST NOVEMBER, 2009

 Overview of the Nigerian Tax System
 Why Tax Incentives?
 Tax Incentives in Nigeria
 Role of Foreign Investors
 Reform of the Nigerian Tax System
 Conclusion

Tax Incentives for Foreign Investors in Nigeria

29/11/2009 2

 Nigeria operates a Federal system of Government
 Taxation is on the exclusive legislative list with
concurrent provisions for taxes on individuals to be
collected by the State Government
 Local Governments are able to collect fees, charges
and levis for all items as listed under the 4th schedule
of the Constitution.
 Federal Inland Revenue Service (FIRS) is the national
tax authority. Each State has a State Internal Revenue
Service (SIRS) as required under the Personal Income
Tax Act

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 Taxes can be categorised into 3 types
◦ taxes imposed on individuals
◦ taxes imposed on corporate entities
◦ taxes imposed on transactions and assets
 Taxes on Individuals
◦ Personal Income Tax - on income of individuals: maximum
rate of 25% after deductions and allowances
◦ Development Levy – payable by all taxable person: fixed
amount per annum

29/11/2009 4

 Taxes on Corporate Entities
◦ Companies Income Tax – 30% of profits after deductions
and allowances
◦ Petroleum Profits Tax: on petroleum activities- between
50% and 85%
◦ Education Tax – 2% of assessable profits – foreign
companies are exempted
◦ Technology Levy
 Taxes on Assets
◦ Property Taxes – not yet legislated on in Nigeria

29/11/2009 Tax Incentives for Foreign Investors in Nigeria 5

 Taxes on Transactions
◦ Value Added Tax: 5% of the value of goods and services
supplied in Nigeria
◦ Capital Gains Tax: 10% of gains on disposal of asset after
deductions
◦ Stamp Duty: imposed on instruments executed by individual
and corporate entities in Nigeria –rates vary
◦ Excise Duty – imposed on the manufacture of goods in Nigeria
collected by the Nigeria Customs Service
◦ Import Duty - imposed on the importation of goods into
Nigeria collected by the Nigeria Customs Service
◦ Export Duty – imposed on the export of goods outside Nigeria
collected by the Nigeria Customs Service


 Tax incentives are special arrangements in
the tax laws to:
◦ attract, retain or increase investment in a particular
sector
◦ stimulate growth in specific areas
◦ assist companies or individuals carrying on
identified activities
 Underlying basis is to ensure overall growth
of the Nigerian economy and even
development of all sectors


 Current policy of Nigerian Government is to
ensure:
◦ incentives are sector based and not granted
arbitrarily
◦ benefit to the Nigerian economy exceeds the cost
of taxes foregone
◦ Incentives are reviewed regularly to confirm if they
are serving the expected purpose
 Foreign investors enjoying incentives are
expected to voluntarily plough back into the
Nigerian economy


 Tax laws provide various incentives to
companies carrying on business in Nigeria
 Incentives may be granted on industry basis
or on tax type and may include:
◦ exemption from payment of taxes
◦ reduction in rate of tax to be paid
◦ grant of allowances and deductions from profits
subject to tax etc
 President has broad powers to grant tax
incentives to any company or individual


 Under the Industrial Development Act
◦ Pioneer Status is granted to qualifying companies and/or
products and services resulting in 3-5 year tax holidays
 Qualifying industries include
◦ Mining
◦ manufacture of cement, glass and glassware, lime from
limestone, ceramic products, rubber, leather textile etc
◦ Areas of industry that are of economic benefit to the
country


 granted to companies in certain industries
where it is deemed that
◦ the industry is not carried out on a scale suitable to
Nigeria’s economic requirements
◦ it is in public interest to do so from payment of
taxes
 attracts
◦ tax exemption for a three year period in the first
instance and a maximum of five years in total
◦ tax free dividends during pioneer period
◦ carry forward of losses made and capital allowances
(on assets) incurred during the pioneer period

29/11/2009 11

 Under the Companies Income Tax Act
◦ Loans granted to Nigerian companies may be exempt from
tax, where they meet prescribed criteria
◦ Dividends received from Nigeria are exempt from tax, other
than withholding tax deducted at source
◦ Profits of shipping and airline companies subject to tax in
Nigeria is restricted to activity carried out in Nigeria
◦ Dividends interest, rent or royalty earned by companies
outside Nigeria and brought in through specified channels
are exempt from tax
◦ Interest earned by a foreign company on its bank deposits
in Nigeria are exempt from tax
◦ Nigerian companies with a minimum of 25% foreign equity
and within their first four years of operation are exempt
from payment of minimum tax
◦ Incentives for downstream gas utilisation projects ??
◦ exemption from taxes for specified period
◦ tax free dividends etc

 Incentives under the Personal Income Tax Act
◦ Non-Nigerian employees of foreign companies in
Nigeria may be exempt from tax in Nigeria, where
 they spend a cumulative period of less than 183 days
in Nigeria during a 12 months period, and
 their income is subject to tax in their home country
◦ The Minister of Finance has wide powers to grant
exemptions to any person based on a treaty
entered into with Nigeria
 Under the Capital Gains Tax Act
◦ Foreign companies carrying on business in Nigeria are
exempted from capital gains tax on disposal of assets,
except such proceeds are brought into Nigeria

29/11/2009 13

 Incentives under the Petroleum Profits Tax
Act
◦ Expenses incurred outside Nigeria which are wholly,
exclusively and necessarily incurred for the Nigerian
operations are allowed as deductions against the
profits of the Nigerian company (this may include
parent company expenses incurred in respect of the
Nigerian company)
◦ Interest on inter-company loans obtained under
open market terms are allowed as deductions

29/11/2009 14

Tax Incentives in Nigeria (6)
 Incentives under the Value Added Tax Act
◦ Import of several items exempted from value added
tax
◦ Exported goods and services also exempted from value
added tax

 Import and Export Duty Exemptions and
Reductions
◦ Import and export duty exemptions and reductions are
available for several items
◦ List of exempt items and rates is reviewed annually based
on economic considerations and developments in the
Nigeria economy
29/11/2009 15

 Incentives under the Tax Free Zones and
Export Processing Zones
◦ There are laws creating tax free zones and export zones,
which exempt companies operating in those areas from tax
obligations in Nigeria for operations carried out in the
zones
◦ Companies are required to register before enjoying the
benefits and all activities must be performed exclusively
within the zones - activities outside the zones will be
subject to tax
◦ Tax free status is continuous as long as activities are
restricted to the zones – Government may however review
the status of the zones based on economic considerations

29/11/2009 16

 Nigeria’s Double Tax Treaty network, offers
significant incentives to investors
◦ ..there is considerable room for further expansion subject
to development of a clear tax treaty strategy
 Nigeria has existing treaties with:
◦ United Kingdom
◦ Canada
◦ Belgium
◦ France
◦ Romania
◦ Netherlands
◦ Pakistan
◦ South Africa
◦ China (to take effect on 1 January, 2009)
◦ Treaties with South Korea, Spain, Sweden and Russia are awaiting
ratification of Nigerian authorities


29/11/2009 17

 Foreign investors are partners with the
Nigerian Government and people to develop
the Nigeria economy
 Relationship should be reciprocal, not
exploitative
 Nigerian Government guarantees security of
investments, investors should discharge their
obligations (tax, corporate social
responsibility etc)

29/11/2009 18

 Significant increase in foreign direct investment
to Nigeria since 1999
 Nigerian Government has responded with
reforms and investment in sectors such as:
◦ Banking,
◦ Power
◦ Transportation
◦ Infrastructure
◦ Tax and other areas geared towards creating a
conducive atmosphere for investors
 Sustained tax reforms highlights commitment of
Government to develop systems for the benefit of
all, including foreign investors
29/11/2009 19

 Tax reforms carried out in major areas
◦ Tax Policy
◦ Tax Legislation
◦ Tax Administration
 The FIRS Strategic Plan (2004-2007) was
articulated and implemented.
 Implementation of the 2008-2010 Plan is
ongoing

29/11/2009 20

 Effective funding has been channeled to the
tax system – FIRS now retains a percentage of
its collection
 Improvement in the tax system achieved
through legislative, administrative and policy
reforms
 Several legislations passed into law - first
comprehensive amendment to tax laws in two
decades; other amendments ongoing

29/11/2009 21

 Autonomy granted to the FIRS
 First National Tax Policy awaiting approval by
Federal Executive Council
 Holistic reorganization of operations have been
undertaken
◦ New groups and units were created with specialised
functions
 Audit and enforcement functions are being enhanced
◦ One stop tax offices have been created – Integrated Tax
Offices (ITOs) and Large Tax Offices (LTOs)
◦ Employees are to be recruited in specialised fields -over
2000 job openings are being filled
◦ Units are now more cohesive and inter-linked

29/11/2009 22

 Automation of systems carried out
◦ electronic registration of tax payers through Tax
◦ Identification Number (TIN)
◦ electronic payment and remittance systems were
installed and have minimised and plugged leakages
in tax collection system
 An Integrated Tax Administration Systems
(ITAS) is being implemented

29/11/2009 23

 Capacity building initiatives are being
implemented
◦ Training policy is in place
◦ Training and retraining of employees at all levels is
ongoing
◦ Identified skills gaps are constantly addressed
◦ Improved staff remuneration, welfare and general
working conditions
 FIRS has also facilitated increased inter-agency
collaboration
 Tax collection has significantly improved
◦ Over $80 billion has been collected between 2004 and
2009- about 150% increase between 2004 and 2008

29/11/2009 24

 Greatest incentive for investors is a stable
efficient, effective and well organized tax
system
 Nigerian Government is committed to
improving the tax system in line with global
best practices
 Nigerian Government is always willing to
provide incentives, which will be to the overall
benefits of the Nigerian economy
 FIRS/JTB are open to partnership with
agencies and persons in other jurisdictions

29/11/2009 25

Conclusion (2)
 Formula is foreign investors + incentives +
increased economic activities =guaranteed
returns for investors and development of
the Nigerian economy!

29/11/2009 26

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