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Financial Literacy

A-Z Of Pioneer Status Incentives In Nigeria

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Nigeria’s economy is growing rapidly. In recent times, there has been keen interest from the international sphere in its emerging markets. These days and in relatively every field we have returnees from diaspora seeking to take advantage of the available growth opportunities. Until recently, the international market was drawn mainly to Nigeria’s oil wealth. Now, we have international investments in Media, Power, Real Estate, Telecommunications, etc.

How to obtain Pioneer Status certificate

Investment decisions are informed by the existence of viable opportunities for growth and profitable returns on such investments. Where these opportunities exist in an economy, the government of such economy will naturally seek to increase its revenue. This is done through tax and levies. As a result before an investor decides to invest in a region it must take in account the tax provisions of that region. The importance of tax provisions cannot be over-flogged. An investment can go bad due to unfavourable tax laws.

PIONEER STATUS INCENTIVE

In Nigeria, the government understands that an unfavourable tax environment can inhibit the growth of any economy, so it has put certain incentives in place to encourage investments and business expansion. One of these incentives is the pioneer status incentive.

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The pioneer status incentive is tax holiday given to companies for a period of time, to encourage the growth and development of the Nigerian economy. A new company or an existing company with an expansion plan may apply for a certificate of pioneer status which lasts for 3 years and is renewable upon application for 2 years. It may also be a seven-year tax holiday in respect of industries located in economically disadvantaged local government areas of the country.

The Nigerian Investment Promotion Commission (NIPC) is the body in charge of administering this incentive. The NIPC has published a list of pioneer industries, that is, industries that qualify to apply for the pioneer status incentive (please see excerpt below).

LIST OF PIONEER INDUSTRIES/PRODUCTS

S/NO INDUSTRIES PRODUCTS
1 Cultivation, Processing and Preservation of food crops and fruits Preserved canned foodstuff and fruits, tea, coffee, refined sugar, tomato puree/juice etc.
2 Integrated dairy production Butter, cheese, fluid milk and powder, ice cream (by products, livestock, minor edible products).
3 a) Deep sea trawling and processing b) Coastal fishing and shrimping Preserved sea foods, fish and shrimps, fishmeal
4 Mining lead, zinc, and iron and steel from iron ore Iron and steel products
5 Manufacture of iron and steel from Iron ore Iron and steel products
6 The smelting and refining of non-ferrous base metal and the manufacture of their alloys Refined non-ferrous base metal and their alloys
7 Mining and processing of barytes, bentonites and associated minerals Barytes, bentonites and associated minerals
8 Manufacture of oil well drilling materials containing a predominant proportion of Nigerian raw materials Barytes, bentonites and associated minerals
9 The manufacture of cement Cement, clinker
10 Manufacture of glass and glassware Sheet glass, pharmaceuticals and laboratory glass wares
11 Manufacture of lime from local limestone Lime
12 Quarrying and processing of marbles Marbles and processed marbles
13 Manufacture of ceramic products Refractory and heat insulating constructional products, laboratory ware
14 Manufacture of basic and intermediate i) Basic and intermediate organic chemical; ii) Basic and intermediate in-organic chemicals;iii) Fertilizers;iv) Petro-chemical;v) Caustic soda and chlorinevi) Pesticide and insecticide
15 Formulation and manufacture of pharmaceuticals Pharmaceuticals, health vitamins
16 Manufacture of yeast, alcohol and related products Yeast, industrial alcohol and related products
17 Manufacture of paper pulp Paper pulp
18 Manufacture of yarn and man-made fibres Yarn and synthetic fibres

A new list was recently approved which you can obtain here.

The Government may also direct that an industry be categorised as pioneer and therefore qualify for up to 5 years tax holiday if:

  • the industry is not being carried on in Nigeria on a scale suitable to the economic requirements of Nigeria; or there are favourable prospects of further development in Nigeria of that industry; or
  • it is expedient in the public interest to encourage the development or establishment of such an industry and the products of the industry to be a pioneer product

A pioneer status may also be granted if the new investment provides for some level of support and alignment to the efforts of the government in terms of poverty alleviation, by direct and indirect employment of more Nigerians.

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An applicant for the pioneer status must be a body corporate, registered in Nigeria; and must have incurred capital expenditure of not less than N10 million. The NIPC recently released pioneer status incentive regulations. These regulations came into effect on 30 January, 2014. In this regulation, there is an additional charge; a service charge of 2% based on estimated tax savings derived from the five-year financial projections of the Company. This amount is to be paid to the NIPC.

 

BENEFITS OF PIONEER STATUS INCENTIVE

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Tax holiday: This enables the company to make reasonable levels of profit within its formative years or initial period of expansion. The profits made are expected to be ploughed back into the business.

Tax free dividends paid during the tax holiday: Dividends are the returns payable to investors/shareholders of a company. These dividends are subject to withholding tax (WHT) before distribution to investors/shareholders. The WHT deducted from the dividend, reduces the amount received by the investors/shareholders. When a company has pioneer status, these dividends are not subjected to WHT. As a result, the investor/shareholder receives the full amount of dividends due.

Capital allowances and Tax Losses: Capital allowances are tax deductions allowed on the costs of a company’s assets. These deductions are granted in lieu of depreciation. They are used to reduce a company’s profits which may be subject to tax, thus reducing the tax payable. Where a company has pioneer status, its profits are not subject to tax, so it is not advisable to use its capital allowances to reduce its profits. The pioneer status provisions allow for these unutilized capital and losses to be carried forward. This way, qualifying companies are entitled to further years of tax relief when their period of pioneer status expires.

This incentive is one of the many incentives available to encourage investment in the Nigeria. In order to take maximum advantage of this incentive, it is advisable that an interested company applies for this incentive when its profits are on the increase or when it anticipates that its profits will increase and would like to maximise the returns to investors/shareholders.

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The author, Ashabi Vincent is a Tax Consultant and a Senior Content Partner with Nairametrics. This article originally appeared in Nairametrics on the 20th of August 2014. It has recently been updated 7th of August 2017.

 

 

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1 Comment

1 Comment

  1. BK

    August 9, 2017 at 8:15 am

    Does it mean that the PSI is not just for a company that’s just commencing business? So If I start a business today, and the business is making losses, ordinarily, I am exempted from minimum tax for the first 4 years. So after these 4 years, I can apply for PSI for another 3 years? Does it work that way?

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MSME

GEEP provides COVID-19 palliative microloans to 87,614 traders

The loans were in line with the government’s policies to reduce poverty and boost productivity.

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GEEP provides COVID-19 palliative microloans to 87,614 traders, Nigeria SME, LAPO, More than 40 SMEs in Lagos shut down due to economic crisis

The Federal Government of Nigeria, through the Government Enterprise and Empowerment Programme (GEEP), has provided a COVID-19 palliative relief loans to about 87,614 traders across twenty states. This was disclosed earlier today through a brief press statement that was made available via the government’s official Twitter handle.

According to the disclosure, the microloans have helped to reduce extreme poverty and encouraged productivity following the easing of the lockdown. Part of the statement said:

In line with the vision of the Nigeria Government to curb poverty and boost productivity in different parts of Nigeria, GEEP has provided palliative microloans to 87,614 petty traders hit by COVID19 pandemic in 20 states of the country in the first phase of disbursement.

These palliative microloans have helped petty traders revive their businesses, as the government eases lockdown measures nationwide. The second phase of the disbursement will target 412,386 petty traders across the country.”

READ ALSO: How Nike rejection birthed sportswear industry in Nigeria

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READ MORE: Alcohol Taxes: Heineken may need to shelve plan to increase beer prices

The Federal Government also announced that the second phase of the loans would be disbursed to a 412,368 trader across the country in a bid to restart economic productivity as the government eases the economic lockdowns that have heavily affected the informal and formal sectors.

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The palliative schemes under the GEEP scheme include FarmerMoni, TraderMoni, and MarketMoni.

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FEATURED

FG releases new details on MSMEs support scheme, budgets N200 billion for loans

The Bank of Industry will also join to coordinate the implementation of the scheme.

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FG releases new details on MSMEs support scheme, budgets N200 billion for loans

The Federal Government has released new details on the Micro Small and Medium Enterprises (MSMEs) support scheme being rolled out under the National Economic Sustainability Programme.

According to estimates provided, the sum of N50 billion will be used to provide payroll support, N200 billion for loans to artisans, and N10 billion support to private transport companies and workers

The government disclosed in a tweet on the official handle of the government, the support scheme will include a Guaranteed Off-take Scheme for priority products, and an MSMEs Survival Fund.

READ ALSO: Covid-19: Timeline of every pronouncement made by Nigeria to support the economy

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Modalities for the take-off scheme

The first track is a Guaranteed Off-take Scheme which will ensure continued local production and safeguard 100,000 existing small businesses to save 300,000 jobs.

Priority products include processed foods, personal protective equipment, hand sanitizers, face-masks, face-shield, shoe-covers and pharmaceuticals.

The implementation committee chaired by Ambassador Mariam Katagum, Minister of the Federal Ministry of Industry Trade and Investment, will collaborate with private sector MSME associations to verify and screen applications from bidding MSMEs, define quantity and price of products required, and also get participants to join in the procurements.

READ MORE: How to access new N75 billion Nigerian Youth Investment Fund

SME survival fund

With a budget of N15 billion, the SME survival fund is expected to sustain 500,000 jobs in 50,000 SMEs.

Major sectors to benefit from the SME survival fund include hotels, restaurants, creative industries, road transport, tourism, private schools and export-related businesses.

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The committee will identify eligible SMEs and screening and verification for this fund will be based on company registration, and tax registration. The implementation committee will approve disbursements through microfinance banks and fin-tech credit providers.

MSMEs that are unregistered will receive support to complete registration with the Corporate Affairs Commission (CAC), and all participants will be expected to make payments based on signed agreements.

The Bank of Industry will also join to coordinate the implementation of the scheme.

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The scheme will last 3 months with Ambassador Mariam Katagum as Chairman, while Ibukun Awosika, Founder of The Chair Centre Limited (TCCL), and First Bank Nigeria will serve as the Vice Chairman.

More details are to be released subsequently from the Implementation Committee.

The Backstory

In July 2020, the Federal Government announced plans to roll out a N2.3 trillion stimulus package and survival fund for Micro Small and Medium Enterprises (MSMEs) to stay afloat amid the economic challenges imposed by the pandemic.

The Vice President Yemi Osinbajo, who also heads the Economic Sustainability Committee, announced it at the 2020 edition of the Micro MSMEs Awards held virtually in July.

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To benefit from the scheme, MSMEs would have to go through a rigorous and painstaking verification process which will be based on certain criteria.

MSMEs that have between 10 to 50 staffs are qualified for this fund. The businesses must make their payroll available to the government for verification while applying for the fund. Once qualified, the MSMEs will be eligible to have their staff salary paid directly from the fund for 3 months.

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FEATURED

How new CAMA 2020 will enhance SMEs’ ease of doing business

President Buhari recently assented to the Companies and Allied Matters Bill 2020.

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Companies Allied Matters Act (CAMA)

The new Companies Allied Matters Act (CAMA) 2020 is expected to enhance the ease of doing business in Nigeria. The new document has repealed and replaced the extant CAMA 1990 with key amendments that would remove some bottlenecks from the old act.

The revised Act will make Nigeria’s business environment as competitive as its counterparts around the world.

Back story: Nairametrics had reported when President Muhammadu Buhari assented to the Companies and Allied Matters Bill 2020, which was recently passed by the National Assembly.

READ ALSO: Corporate organisations now pay N200,000 for unsolicited premises inspection in Abuja 

He explained that some innovative processes and procedures were included in the new document to ease the operations of companies. Some of them are the introduction of Statements of Compliance, which replaced “authorised share capital” with minimum share capital to reduce costs of incorporating companies; and providing for electronic filing, electronic share transfers, e-meetings as well as remote general meetings for private companies.

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READ ALSO: Prestige Assurance could be a good opportunity if it gets its recapitalization right

Provisions that aid ease of doing business:

* Provision of single-member/shareholder companies- Section 18 (2) of the new CAMA now makes it possible to establish a private company with only one member or shareholders.

* Restriction on multiple directorship in public companies- S.307(1) of the Act frowns at a person from being a director in more than five (5) public companies at a time.

* Appointment of Company Secretary now optional- Going forward, the appointment of company secretary for private company is optional. According to Section 330 (1) of the new CAMA, the appointment is only mandatory for public companies.

* A Director can’t hold the office of a Chairman, CEO – According to Section 265 (6), private firms are now restricted from appointing a director to hold the office of the Chairman and Chief Executive Officer.

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* Procurement of Common seal not mandatory – Contrary to the previous document that insisted that every company must procure a Common Seal, CAMA 2020, according to Section 98, states that most jurisdictions around the world have expunged the requirement from their laws.

* Concept of Limited Liability Partnership and Limited Partnership – The new act combines the organisational flexibility and tax status of a partnership with the limited liability of members of a company.

* Virtual AGMs – New act made provision for virtual annual general meetings (AGM), provided that such meetings are conducted in accordance with the Articles of Association of the company. This is expected to facilitate participation from any location at minimal costs.

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* SMEs exempted from appointing auditors – Small companies or any company with a single shareholder are no longer mandated to appoint auditors at the AGM to audit their financial records.

Why it matters:
Nigeria is largely dominated by Medium and Small-Scale Enterprises (MSMEs). Making registration easier for them brings in more businesses into the formal space. This also enhances tax revenue for the government.

The Companies and Allied Matters Act (CAMA) was promulgated in 1990 to regulate the formation and management of companies in Nigeria

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