With the 2022 finance bill, the federal government plans to phase out the “antiquated” pioneer status incentive and other tax breaks for mature industries.
The pioneer status incentive (PSI) is a tax break that exempts qualifying industries and products from paying corporate income tax for the first three years, with extensions of one or two years possible.
Manufacturing, solid materials, pharmaceuticals, information and communication, trade, construction, waste management, electricity and gas supply, tourism, and infrastructure are among the 71 industries currently eligible for pioneer status.
The bill was approved by the federal executive council (FEC) on Wednesday, presided over by Vice President Yemi Osinbajo.
The bill calls for tax collection to begin in 2023.
Following the meeting, Zainab Ahmed, minister of finance, budget, and national planning, told state house correspondents that the bill was intended to aid in the implementation of the 2023 budget.
She stated that with the FEC’s approval, President Muhammadu Buhari will now send the bill to the National Assembly for consideration and passage into law.
The 2022 finance bill, according to Ahmed, will focus on five areas: tax equity, climate change and green growth provisions, job creation and economic growth, reforming tax incentives and generating revenue/improving tax administration.
The purpose of the tax equity reforms is to combat tax evasion and aggressive tax planning practices that some companies operating in Nigeria are involved in but also enabling the utilisation of ICT tools and using international best practice to assess taxpayers tax on a fair and reasonable basis,” Ahmed said.
The climate change green growth focus will complement non-fiscal reforms that are designed to reduce greenhouse emissions and also to facilitate domestic and international investment in climate adaptation, as well as mitigation and also to enhance green growth and create jobs.
The third focus area, job creation and economic growth is also designed to complement the ease of doing business and other reforms to support capital formation by the private sector as well as to foster enabling business environments for micro, small and medium enterprises for youth as well as women in businesses.
It will also help to enhance the performance of businesses that are in the fintech, the ICT, entertainment, fashion, sports as well as the art space.”
“The fourth tax incentive is to phase out antiquated pioneer, and other tax incentives for mature industries and moving a revised set of incentives for real infant industries.
Through economic governance reforms we have also made proposals to reduce tax expenditure, which is equivalent to foregone revenue to support fiscal space.
It is also based on statistics to gradually transition away from expensive and redundant tax incentives to incentives that are rewarding performance.
The fifth focus area is revenue generation and tax administration is to complement the ease of doing business and other reforms that enhance tax administration as well as to introduce targeted fiscal and non-fiscal reforms to amend, address and cure defects in existing tax and non-tax laws and regulations.
Ahmed stated that if the bill is passed into law, it will amend a number of Nigerian fiscal laws.
The capital gains tax act, the company income tax act, the customs excise tariff act, the Federal Inland Revenue Service (FIRS) act, the personal income tax, the stamp duties act, tertiary education tax, value added tax (VAT) act, the insurance act, and the Nigerian police trust fund act are among the fiscal laws, according to her.
The Nigerian Agency for Science and Engineering Infrastructure (NASENI) act, the finance (control and management) act, and the fiscal responsibility act would also be amended.