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Home Opinions Blurb

Two quoted companies that could be affected if FG goes ahead with pioneer status restriction

Nairametrics by Nairametrics
April 13, 2015
in Blurb, Company News
A-Z Of Pioneer Status Incentives In Nigeria
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The Federal Government has announced plans to target 22 companies who were granted pioneer status contrary to the provisions of the Industrial Development Act. NIPC, has written to restrict the pioneer status granted to these 22 companies to three years and FIRS has raised assessments on four of the companies that are liable to pay.

Pioneer status law allows the NIPC to issues pioneer status of no more than 3 years in the first instance thus exempting them from paying tax from the income for which the pioneer status covers for that period. However, a further two year extension can be given if application is successful.

Despite this provision most companies had obtained 5 year straight pioneer status from the NIPC thus denying the government of potential tax revenues. This probably wouldn’t be a problem but now that the government is cash strapped their searchlight has now beamed on those companies. Their searchlight is particularly on oil and gas companies who have in recent times benefited from such incentives following divestment from IOCs.

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For retail investors who may be worried, one oil and gas company comes to mind. Seplat obtained pioneer status for 5 years in January 2013 after acquiring assets from an IOC. It was seen as a surprising move at the time considering that Seplat acquired an already existing asset that was under operation. Nevertheless, the pioneer status was not affected. But whilst the initial 5 year period did not fall under the scrutiny of the FIRS back then it probably will this time and may be reduced to 3 years. If it is reduced then it is likely to impact on the future value of Seplat.

Another upstream company that currently isn’t affected but may become affected is Oando. At their last earnings call in 2014, the company executives confirmed that they had applied for pioneer status from the FG and was awaiting approval. The application was on the back of the COP acquisition. With the FIRS and NIPC is now circumspect about such incentives it remains to be seen if this application will be granted soon enough to start to impact on bottom line or if indeed it will even be granted.

Tags: firsNews ReviewOando Plcseplat
Nairametrics

Nairametrics

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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