Incentives To Industries Incentives To IndustriesWithin the past few years, the government has progressively introduced a number of incentives designed to promote investment, employment, product mix and various other aspects of industry. These incentives encompass:
Fiscal measures on taxation
Enterprises which fulfill the necessary criteria are free to apply for the following specific incentives:
Pioneer Status
100 percent tax free period for 5 years for pioneer industries that produce products declared as "pioneer products" under the Industrial Development (Income Tax Relief) Act No. 22 of 1971 as amended in 1988, or such other deserving enterprises as may be approved by the Council of the Nigerian Investment Promotion Commission - (NIPC). For list of industries/products approved by the Federal Executive Council as Pioneer Industries/Products, see Appendix 1
30 percent tax concession for five years to industries that attain minimum local raw materials utilization as follows:
Industrial Sector
Minimum Level
Agricultural
80%
Agro-Allied
70%
Engineering
60%
Chemical
60%
Petro-Chemical
70%
15 percent tax concession for five years. The rate is graduated in such a way that an industry employing 1,000 persons or more will enjoy the 15 percent tax concession while an industry employing 100 will enjoy only 6 percent, while those employing 200 will enjoy 7 percent and so on.
10 percent tax concession for five years. This applies essentially to engineering industries, where some finished imported products serve as inputs. The concession is aimed at encouraging local fabrication rather than the mere assembly of completely knocked down parts.
2 percent tax concession for five years on the cost of facilities provided for training.
10 percent tax concession for five years. This concession will apply to industries that export not less than 60 percent of their products. The emphasis is on the encouragement at the pre-establishment stage of export-oriented enterprises.
20 percent of cost of providing basic infrastructure such as roads, water, electricity where they do not exist is tax deductible once and for all.
100 percent tax holiday for 7 years, additional 5 percent depreciation allowance over and above the initial capital depreciation.
120 percent tax deductible expenses provided the research and development is carried out in Nigeria; and 140 percent for R and D on local raw materials.
In order to boost local industries, stimulate trade and reduce cost, government abolished most excise duties with effect from 1st January, 1998. However, in order to safeguard the health of our citizens, government has re-introduced Excise Duty on tobacco, cigarettes and spirits. Thus, with effect from 1st January, 1999, excise duties on these products are as follows:
The incentives itemised here are in no way exhaustive and neither are the quantum or percentage of relief mentioned fixed for all times. The would-be investor is, therefore, advised to ascertain the current operative figures at the time of making his investment. Other categories of incentives that would be of interest to foreign and local investors are referred to and examined in other publications.
Double Taxation Agreements are being negotiated and concluded with various countries. The desired effect is to eliminate double taxation on investment income.
This incentive is granted to companies engaged in manufacturing which incur qualifying capital expenditure for the purpose of approved expansion. The incentive should be in form of a generous allowance on capital expenditure incurred by companies for the following:
This scheme aims to encourage re-investment of profit.
Apart from the capital allowance currently in existence, consideration may be given to the introduction of investment tax allowance. Under this scheme, a company would enjoy generous tax allowance in respect of qualifying capital expenditure incurred within 5 years from the date of the approval of the project.
Incentives To AgricultureWithout prejudice to governments commitment to deregulation of the financial sector, banks have been enjoined to recognise differences in the gestation periods within each category of agricultural projects and observe the grace periods on agricultural loans as outlined below:
12-18 months for aquaculture
For loans in respect of large-scale seasonal crops, fish and poultry farming with extensive capital outlays, the grace period of five years has been recommended to the banks.
Export Incentives For Non-Oil SectorTo supplement its rich oil mineral resources, serious efforts are being made by Government to develop Nigeria's non-oil exports.
Various legislations together account for the large package of incentives which are today available to persons wishing to export from Nigeria. Some of these incentives which range from cash grants to duty and tax reduction and cancellation are now considered.
Under this scheme an exporter of Nigerian commodities is obliged to open a foreign currency domiciliary account (D/A) with an authorised bank of its choice in Nigeria into which 100% of the proceeds of such export may be credited in foreign currency.
The EDF is a special fund set up by the government to provide financial assistance to private sector exporting companies to cover a part of their initial expenses in respect of the following export promotion activities:
participating in training courses, symposia, seminars and workshops on all aspects of export promotion.
The conditions for eligibility for assistance from the Fund are as follows:-
The exporting company which must be registered as an exporter with the Nigerian Export Promotion Council (NEPC) must be an exporter of any product of Nigerian origin with at least 35% value added or 40% local raw material content or/and of services e.g. engineering, consultancy, shipping.
In addition to a satisfactory status report such a company must have its marketing control in Nigeria.
All applications for EDF assistance have to be made on the authorised application forms from NEPC and accompanied with a detailed work plan of the project to be undertaken plus a detailed report of past activities.
This fund provides cash inducement for exporters that have exported a minimum of N50,000 worth of semi-manufactured products. The cash incentive is to enable such exporters to (i) increase the volume and value of export; (ii) diversify their export products and market coverage. Since 1997, government approved a uniform rate of 4% of foreign exchange repatriated as basis for computation of export expansion grant. In addition, the autonomous exchange rate is applied in computing the export expansion grants (EEG) paid to beneficiary exporters. This fund is only available to exporters who have repatriated in full the proceeds from their export transaction. The repatriation must be certified by the CBN to be eligible.
In addition to the retention of 100% of export proceeds by exporters, a Duty Draw-back/ Suspension Scheme has recently been approved in order to further encourage manufacturing for the export market. Exporters/producers can import raw materials and intermediate products for use in the manufacture of export products free of import duty and other indirect taxes and charges. The scheme covers a rebate of duties already paid on imported inputs and the suspension/exemption from the payment of such duties by exporters.
To qualify for duty draw-back payments, the actual exportation of the products which were produced with imported inputs must be completed within 18 months from the importation of the inputs. Duty suspension becomes a permanent waiver of duty payment only when inputs imported under the suspension scheme are used to produce export products and are exported within 12 months of the importation.
The Manufacture-in-Bond-Scheme will involve the importation of duty-free raw materials for production of exportable goods, on the basis of a bond issued by a first-class bank which guarantees that all the end-products will be exported. The performance bond will be discharged after evidence of exportation and repatriation of foreign exchange has been produced. Raw materials under import prohibition could be imported under this scheme.
An exporter wishing to benefit from Duty Drawback, Duty Suspension or Manufacture-in-Bond Scheme is to direct his application for participation to the Nigeria Export Promotion Council (NEPC)
This scheme serves as a supplementary export subsidy to compensate exporters for (a) the high cost of local production arising mainly from infrastructural deficiencies and (b) other negative factors beyond the control of the exporter.
The Nigerian Export Import Bank (NEXIM) was established as an export credit agency replacing the Nigerian Export Guarantee and Insurance Corporation. NEXIM which commenced operations in January 1991 has statutory functions which include:
NEXIM facilities include trade finance, project finance, treasury operations, export advisory services, market information, exporter education services and guarantees to enhance its functions. Exporters have access to these facilities only through commercial and merchant banks operating in the country. Advisory and market information services tray be obtained directly by exporters from NEXIM.
NEXIM provides a rediscounting and refinancing facility (RRF) which is designed to assist banks to provide pre- and post- shipment finance in local currency in support of non-oil export.
Sourcing of raw materials by exporters may also be made easier by NEXIM's foreign input facility (FIF) and stock facility. FIF provides the export sector with immediate foreign exchange requirements needed for the importation of raw materials and capital equipment needed for production of goods for export. Stock facility is made available in local currency to assist manufacturers of exportable goods to procure local raw materials.
This scheme provides for an exporter of any product to discount his bill of exchange and promissory notes with his bank.
This scheme was established in 1991 and allows interested persons to set up industries and businesses within demarcated zones (EPZs) principally with the objective of exporting the goods and services manufactured or produced within the zones. Calabar, in Cross River State, has been designated as the primary EPZ territory and the necessary infrastructure has been put in place. The incentives that come to investors in the designated EPZ territories include:
The scheme when fully operational is intended to embrace industrial productions, offshore banking, insurance and re-insurance, international stock, commodities and mercantile exchanges, commercial industrial research, agriculture and agro-allied industry, mineral processing, as well as international tourist resort development and operations. The Nigerian Export Processing Zones Authority manages, controls and coordinates all activities within the zones.
The law in Nigeria provides an additional annual depreciation allowance of 5 % on plants and machinery to manufacturing exporters who export at least 50% of their annual turnover provided that the product has at least 40% local raw material content or 35% value added.
Procedure For ExportWith the abolition of export licence in 1986, the procedure for export is now less cumbersome. The first step is for the potential exporter, which must be a corporate body or co-operative society to register with the NEPC as an exporter. The NEPC is the government agency charged with the responsibility of promoting exports of made-inNigeria goods. The relevant application form which can be obtained from NEPC zonal office in Lagos, Kano, Port Harcourt, Enugu and Jos and the Abuja headquarters, is to be duly completed and returned accompanied with the following documents:
For co-operative societies, evidence of registration would be required in place of certificate of incorporation. After submission of all required documents, registration takes two (2) weeks before an applicant exporter is issued with a certificate inscribed with a code number. Renewal of registration with NEPC as an exporter is compulsory every two years by submitting the following documents:
Once registered, the exporter can commence to negotiate sales contracts whose details should include quantity and quality of goods, period/date of delivery, price per unit, FOB, CIF or C & F terms of payment. As soon as an agreement is executed and in place, the exporter can proceed to obtain from his bank, CBN, NEPC, or Federal Ministry of Trade, a Form NCD 3(A) (foreign exchange control form). This form when completed and submitted is to ensure the required repatriation of proceeds of exports.
The Export (Prohibition) Act prohibits the exportation of certain food stuff and other specified items from Nigeria. The prohibited items are:-
A current list of exportable products can be obtained from any of the zonal offices of NEPC.
The Export (Incentives and Miscellaneous Provision) Amendment Decree of 1992 prescribes that all raw or unprocessed commodities whether mineral or agricultural shall be exportable on the payment of a levy as may be prescribed from timeto time by order of the NEPC. The Decree further provides that, save for the aforementioned levy and other NEPC guidelines, all exports from Nigeria shall be exportable without the production of export licence, provided all existing foreign exchange regulations are complied with. But this is without prejudice to the current export prohibition list.