TAX-PIONEER STATUS OF COMPANIES IN NIGERIA: What You Should Know.
Table of Contents
Tax holidays, tax break, tax incentive, tax favour, tax exemption, all mean tax pioneer status. Nigeria grants tax break to music, movie producers, National Assembly Investigates Abuse Of Pioneer Status, FG lifts suspension on tax holiday for Pioneer companies,
industrial tax holidays, tax Incentives for Foreign Investors in Nigeria.
industrial tax holidays, tax Incentives for Foreign Investors in Nigeria.
Firstly, if you are a business man or a student, especially students of taxation, this article is for you. The main purpose of this article is to enlighten you the business man on your business rights in Nigeria. It is our policy to furnish you with complete and full top business information at all times.
This is because you need to know what type of business to do so as to have certain tax reliefs like tax holidays, or other incentives. You need to know how to apply for such benefits and how to sustain the gain derived. This article will increase your knowledge on how to do business in Nigeria. I urge you to read on.
TAX-PIONEER STATUS OF COMPANIES IN NIGERIA: What You Should Know.
Investment Incentives in Nigeria
Relevant laws are The Industrial Development ( income tax relief) Act, 1971 (IDA) which became effective 1 April, 1970; and Company Income Tax Act Cap C21 LFN 2004. (CITA). Some of the points highlighted in this article are curled from these two acts.
Why is pioneer status necessary for some companies and products?
Nigerian government has over the years rolled out many incentives to encourage both local and foreign investors to invest in Nigerian . Pioneer status is one of the major investment incentives in Nigeria. This privilege is given to increase the production of certain goods and services, and to encourage investment in certain sectors of the economy so as to reduce over dependence on their importation into Nigeria.
TAX-PIONEER STATUS OF COMPANIES IN NIGERIA: What You Should Know.
Pioneer status is an incentive from Nigerian government which exempts companies from income tax for a certain period of production. It is also known as Tax holiday. It is generally seen as industrial investment device.
This is to enable such company to get established and perhaps re-cope certain of its investments before it takes up the burden of tax payment.
WHAT PRODUCT AND COMPANY QUALIFYS FOR THIS?
The products or companies suitable for this pioneer status must fall under the following:
- Industries or products that do not already exist in the country
- Where it exist, it does not meet the required needs or fulfil expected goals
- Any industry or product for which there is a favourable prospect of development.
- The establishment is in the public interest.
What is the advantages to the Economy:
- Such exempted tax money is always invested back into the business
- Leading to the growth of such business and industry.,
- Which in turn increases productivity,
- Generate employment,
- Fosters national economic growth,
- Allows investors to establish their business in Nigeria,
- Creates new lines of production in the country,
- Reduce the countries dependencies on imports.
- The over all aim therefore, is to promote industrialisation and economic growth
TAX-PIONEER STATUS OF COMPANIES IN NIGERIA: What You Should Know.
THE REQUIREMENTS FOR PIONEER STATUS IN NIGERIA
Take time to go through these requirements one after the other. If you have need of further clarifications do your best to contact us.
Qualifying Capital Expenditure:
(1) For any application for a pioneer certificate to be considered, the estimated cost of qualifying capital expenditure to be incurred by the company on or before production day shall not be less than:
(a) N50,000 in the case of an indigenous-controlled company; or
(b) N150,000 in the case of any other company.
Application Procedure:
Application for pioneer status can be made by a company incorporated in Nigeria or by a group of persons on behalf of a company which is to be incorporated later. The application shall be on a prescribed form. Every such application shall state the grounds upon which the applicant relies and if the application is for the issue of a pioneer certificate to any company,
The applicant shall:
(a) State whether the company is, or the proposed company when incorporated, shall be an indigenous-controlled company;
(b) Give particulars of the assets on which qualifying capital expenditure will be incurred by the company, including their source and estimated cost:
(i) On or before production day, and
(ii) During a period of three years following the production day;
(c) Specify the place in which the assets are to be situated;
(d) State the probable production day;
(e) Specify any product and by-product (not being a pioneer product) to be produced, and give a reasonable estimate of the quantities and value, of such product and by-product during a period of one year from production day;
(f) Give particulars of the loan and share capital (or proposal in this regard) including the amount and date of each issue and the source from which the capital is to be or has been raised;
(g) In the case of a company already incorporated, give the name, address and nationality of each director and the number of shares held by him/her; and
(h) In the case of a proposed company, give the name, address and nationality of each promoter of the company.
TAX-PIONEER STATUS OF COMPANIES IN NIGERIA: What You Should Know.
ALSO READ: REGULATING SOLID MINERAL INDUSTRY IN NIGERIA
What is Production Day
Subsection (1) of Section 6 of IDA requires that not later than one month after the material date, a pioneer company shall make an application in writing to the Industrial Inspectorate Director to certify the date of its Production Day.
Production day is the day it starts commercial production and date from which the tax relief shall start counting.
Certification of Qualifying capital expenditure:
Not later than one month after the production day of a pioneer company has been finally determined and certified by the Director or within such extended time as the Revenue Service may allow, a pioneer company shall make an application in writing to the Revenue Service to certify the amount of the qualifying capital expenditure incurred by the company prior to production day.
The pioneer certificate issued to any company can be cancelled if:
(a) The production day has been certified as on a date which is more than one year later than the estimate thereof given in the company’s application for a pioneer certificate. However, the council will not cancel the certificate for this reason if it is satisfied that the delay is due to causes outside the control of the company.
(b) The certificate of qualifying capital expenditure as on the production day is to the effect that the amount of qualifying capital expenditure incurred as on that day is less than the prescribed minimum applicable to the company.
(c) The pioneer company concerned applies for the cancellation of the certificate.
(d) A pioneer company has contravened any other provision of the IDA or has failed to fulfil any estimate or proposal made in its application for a pioneer certificate or any of the conditions contained in its pioneer certificate.
TAX-PIONEER STATUS OF COMPANIES IN NIGERIA: What You Should Know.
AFTER THE TAX HOLIDAYS
After the tax holidays, what happens?
At the expiration of the relief period, the tax procedures shall be as :
(a) A trade or business carried on by a pioneer company shall be deemed to have permanently ceased at the end of its tax relief period.
(b) In respect of that trade or business, the pioneer company shall be deemed to have set up and commenced a new trade or business on the day next following the end of its tax relief period.
(c) The pioneer company shall make up accounts of its old trade or business as follows:
(i) a period not exceeding one year commencing on its production day,
(ii) successive periods of one year thereafter; and
(iii) a period not exceeding one year ending at the date when its tax relief period ends.
(d) The closing figures in respect of the pioneer company’s assets and liabilities as shown in the last accounts in respect of its tax relief period shall be used as the opening figures for the accounts of the company’s new trade or business which is that deemed to commence immediately after the company’s tax relief period.
(e) Capital expenditure incurred by the pioneer company in respect of assets acquired during the tax relief period shall for capital allowances purposes be deemed to have been incurred on the day next following the end of its tax relief period.
(f) Where the Revenue Service is satisfied that a pioneer company has incurred a loss in any accounting period within the tax relief period, it shall issue a certificate to the company accordingly. (IDA Section 10(6)).
In determining whether such a loss has been made, the Revenue Service may in its absolute discretion exclude such sum as may be in excess of an amount appearing to the Revenue Service to be just and reasonable in respect of –
TAX-PIONEER STATUS OF COMPANIES IN NIGERIA: What You Should Know.
(1) remuneration to directors of the company;
(2) interest, service, agency or other similar charges made by a person who is a shareholder of the company or by a person controlled by such shareholder (IDA Section 13(3)).
A net loss incurred by a pioneer company shall be deemed to have been incurred by the company on the day on which its new trade or business commences, that is, on the day following the expiry of the tax relief period (IDA Section 14(3)).
For each accounting period, the Revenue Service shall issue to the pioneer company a statement showing the amount of the income or loss for that period.
Net loss means the aggregate of losses incurred during the tax relief period after deduction of profits, if any, made at any time during that period.
Any dispute between the Revenue Service and the Company with regards to the statement of income or loss issued by the Revenue Service shall be subject to objection and appeal in like manner as if such statement were an assessment under CITA.
(g) Any profit earned by a pioneer company from any operations or activities whatsoever, other than its pioneer enterprises shall be deemed to be derived from Nigeria and shall be liable to tax under CITA.
(h) A service charge of 2% based on the projected tax savings is payable to the Nigeria Investment Promotion Commission during application as contained in Pioneer Status Incentive Regulation 2014.
(i) Any profits shown on the statement issued by the Revenue Service in respect of the income of a pioneer company for each of the accounting periods of its tax relief period shall not form part of the Assessable profits or Total profits of the pioneer company for any year of assessment and shall be exempt from tax under CITA – (IDA Section 16).
(j)Any amount of profits that is exempt from tax as above should be credited by the pioneer company to an account to be kept for the purpose of dividend distribution by the company.
Any dividend that is declared by the company out of such profits shall be exempt from tax in the hands of the shareholders and shall for the purposes of CITA and PITA be deemed to be paid out of profits on which tax is not paid or payable.
TAX-PIONEER STATUS OF COMPANIES IN NIGERIA: What You Should Know.
(k) During its tax relief period, a pioneer company shall not –
– Make any distribution to its shareholders, by way of dividend or bonus,
– in excess of the amount by which the account maintained for the exempt profits is in credit at the date of such distribution.
– Grant any loan without first obtaining the consent of the Minister. The consent of the Minister shall only be given if he is satisfied that the pioneer company is obtaining adequate security and a reasonable interest for any such loan.
THEN READ: TAX MANAGEMENT
The offences specified in IDA are:
(a) Making or presenting any declaration or statement which is false in any material particular; and
(b) Production of any invoice or undertaking which is false in any material particular or has not been given by the person by whom it is purported to have been given or which has been altered or tampered with.
The defence available to any person charged is to be able to prove that he has taken all reasonable steps to ascertain the truth of the statement made or contained in any document so presented or produced or to satisfy himself of the genuineness of the invoice or undertaking.
TAX-PIONEER STATUS OF COMPANIES IN NIGERIA: What You Should Know.
Penalties:
Any person who is guilty of any of the above offences, shall be liable on conviction to a fine not exceeding N1,000 or to imprisonment for five years or to both such fine and imprisonment.
Where the offence is committed by a body corporate, or firm or other association of individuals:
– every director, manager, secretary or other similar officer of the body corporate;
– every partner or officer of the firm;
– every person concerned in the affairs of the association; or
– every person who was purporting to act in any such capacity as aforesaid, shall severally be guilty of that offence and liable to be prosecuted and punished for the offence in like manner as if he had himself committed the offence.
The defence available to any of such persons is to be able to prove that the act or omission constituting the offence took place without his knowledge, consent or connivance.
The above shall not relieve any person from liability to payment of any sum for which he is or may be liable under any undertaking given by him under any provision of IDA.
TAX-PIONEER STATUS OF COMPANIES IN NIGERIA: What You Should Know.
The understanding of this Act (IDA) implies certain technicalities which a layman may not be able to understand nor apply. Contact us for such tax needs in your business. If you enjoyed this post share it with your friends. Send in your feedback through the comment platform.
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Deacon Anekperechi Nworgu, a seasoned economist who transitioned into a chartered accountant, auditor, tax practitioner, and business consultant, brings with him a wealth of industry expertise spanning over 37 years.
