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TAX INCENTIVES IN NIGERIA ENCOURAGES INVESTMENTS – You have to know about: types of tax incentives in Nigeria, tax incentives for agriculture in Nigeria, tax incentives in Nigeria, tax incentives and economic development in Nigeria, the fgn introduced the granting of incentives to attract investment in the private sector, pioneer status in Nigeria, agricultural tax in Nigeria, tax holiday in Nigeria, are relevant matters relating to tax incentives and investment in Nigeria. 

Others incentives and fiscal measures approved by the government that favours and encourages large investments in Nigeria are: fiscal incentives in Nigeria, Investment Incentives In Nigeria. The Companies Income Tax Act has been amended in order to encourage potential and existing  investors, Investment Tax Credit at the current rate of 5%. Others include tax holidays; tax credits; capital allowances; and investment allowances. 


What really is Tax Incentive?
In summary,Tax incentives are relieves in form of non-taxable incomes, deductible allowances, exemptions etc that are granted to incorporated companies in Nigeria. 

Nigeria has various tax incentives intended to encourage investment in key sectors of the economy, as follows.

  1. Tax holidays. …tax exemption for some periods. 
  2. Rural location incentives. …for certain businesses located in rural area. 
  3. Export incentives. …for export oriented industries 
  4. Gas utilisation incentives. …for gas utilisation companies 
  5. Tourism incentives. …especially for hotels 
  6. Interest incentives. .for certain loans granted by banks, especially in agro-industries 
  7. Investment allowances. …for certain investments 
  8. Foreign tax credit. – for international businesses.

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Some of the reasons are:

a. To attract investment in certain sectors of the economy, (industry oriented                       incentives).,
b. To attract Foreign Direct Investment
c. To attract investment into non-existent sectors/products of the economy.,
d. To attract investment into certain geographical areas of the country,
e. To provide employment for the unemployed,
f. For general economic growth and development of the nation,
g. And others.


After Company Incorporation Business Begins:

After due incorporation processes with Corporate Affairs Commission (CAC), and Federal Inland Revenue Services for TIN and VAT registerations, the company begins to operate under Companies and Allied Matters Act 1990,and the enabling tax law is Companies Income Tax Act (CITA) Cap. C21 LFN 2004 except companies engaged in petroleum operations who operate under Petroleum Profit Tax Act (PPTA) Cap.P13 LFN 2004.


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What are these tax incentives?
In Nigeria, therefore, there are a lot of tax incentives that has been introduced at one time or the other to enhance economic development of the country. These are inform of Acts, Regulatory circulars, memorandum of understanding and others. In this write-up we try to tie the incentives with the relevant acts or regulatory circulars.

1. Pioneer Companies: this comes under Industrial Development (Income Tax Relief) Act Cap 179 LFN 1990. This Act grants a pioneer Tax holiday for an initial period of three years, subject to further extension of two years or ones and for all 5 years tax holidays without further extension. This Act defines companies and products that qualify for pioneer status. 


2. Export Free Zone Exempt Profit: This grants a 100% exemption from profits obtain from export oriented activities within and outside an export free zone for 3 consecutive assessment years;

3. Under CITA the following incentive are granted:

a. Locally Manufactured Part: 15% investment tax credit is allowed for a company which produce locally manufactured plant, machinery or equipment;
b. Spare Part Fabrication: For a company engaged wholly in the fabrication of spare part tools and equipment for local consumption and export; 25% investment tax credit is allowed on qualifying capital expenditure. S.28 (1) of CITA (Companies Income Tax Act);
c. Investment Tax Relief: Relief is granted for three years to companies located at least 20km away from essential infrastructure such as electricity, water, tarred roads and telephone services; on expenditures incurred on such infrastructures;
d. Investment allowance: 10% tax relief for companies in the first year of purchase of plant and machinery used for agricultural production and manufacturing by agricultural and manufacturing companies. This is in addition to the normal initial and normal allowances;
e. Replacement of Obsolete Plant: 15% investment tax credit is allowed for a company which  incurred  expenditure for the replacement of  obsolete plant and machinery;
f. Rural Investment Allowance: Granted to companies established in rural areas lacking infrastructural facilities. The same rates are applicable as in investment Tax Relief as follows:
. No facilities at all 100%
. No electricity at all 50%
. No tarred road at all 15%
g. Deductible Capital Allowance: Full capital allowance is granted to agricultural and manufacturing companies in respect of assets in use in agricultural production and manufacturing;
h. Research and Development: 20% investment tax credit on qualifying expenditure is available to companies engaged in research and development for commercialisation, levies paid to National science and Technology Fund is also allowed as deduction in arriving at company’s taxable profits;
i. Hotels Income Exempt from Tax: 25% of income in convertible currencies derived from tourist provided the income is put in a reserved fund to be utilised within five years for the building expansion of new hotels, conference centres and new facilities for tourism development;


4. For Banks:
1. Tax free Investment Relief is granted on the following interest charges: full tax exemption on interest on foreign currency deposit account of a non resident company opened in or after 1 January, 1990:
a. Full exemption on interest on foreign currency domiciliary account accruing on or after 01/10/1990.
b. Tax Relief is also granted  on interest on foreign loans or interest payable on any loan granted by a bank for manufacture for export.
c. Interest on loan granted by bank on or before 1 January 1997 to a company engaged in agricultural trade or business, or for the fabrication of a local established  company under the Family Economic Advancement Programme. The incentives are based on the condition that the moratorium is not less than 18 months and the interest rate is not more than the base lending rate at the time the loan was granted.
5.Tax-free Dividends: these come through:
a. Franked Investment Income (FII) provisions
b. Three year tax free dividend on foreign currency equity ordinary shares imported into Nigeria.
c. Five year tax dividend for companies in priority sectors in Nigeria such as agricultural production and processing, petrol chemical or liquefied natural gas production.
d. Tax free dividends to priority companies for the period of tax holidays.
e. Dividend distributed by unit trust companies.
f. Five year tax incentive for dividends from small companies in the manufacturing sector.
g. Dividend received from investments in wholly export-oriented businesses.
h. Dividend ,interest, rent, royalty derived from foreign companies.
i. Profit of the Nigerian company in respect of goods exported from Nigeria provided that the proceeds are repatriated to Nigeria and used for the purchase of raw materials, plant equipment and spare parts.
j. The interest on foreign currency domiciliary account in Nigeria accruing on or after 1 January 1990.


6.Tax Treaties with other countries: This is aimed at

a. Eliminating double taxation through the granting of credit for tax paid by a Nigerian company in the other country etc.
b. The protection of tax incentives legislation of the government which would otherwise be nullified by the tax measures of the other country.
c. The creation of a stable tax regime, which a prospective investor can rely on
d.Concessions of treaty-rules for investment income which are lower than domestic rates and are available to treaty partners only
7. Gas industry :Reliefs are granted to companies engaged in gas utilisation (down stream operations) such as tax free period of up to five years and accelerated capital allowances;
8. Small Business Rate: 20% tax rate for four years for a company whose turnover is minimal in the year of assessment. This is applicable to companies whose business falls under manufacturing , agricultural production or mining of solid minerals or wholly export trade companies.
The incentives granted under the Nigerian Tax Laws are aimed at encouraging local and foreign investors.
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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.

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