…As MAN, others kick, say we’re not consulted
By Bimbola Oyesola, Isaac Anumihe and Adewale Sanyaolu
The Federal Government’s recent review of its pioneer status list which gave tax holidays to 27 industries, is now raising dust among stakeholders, with the Manufacturers Association of Nigeria, (MAN) alleging it was not consulted before the review was announced.
Their concerns were voiced as the Minister of Industry, Trade and Investment, Okechukwu Enelamah, made the clarifications on businesses that would enjoy the 3 -5 year tax holiday following the Federal Executive Council’s approval penultimate Wednesday for 27 new industries to grow and expand their investments.
The list was last reviewed in 2006 but the latest approval was to bring the industrial policy of the country to global best practices.
The Minister while making the clarification, explained that the pioneer incentive scheme is governed by the Industrial Development Income Tax Relief Act.
“The whole purpose of it is to give tax holidays to industries that we consider pioneer, not mature, to enable them to grow and attract investment in them,’’ he said.
According to Enelamah,, these are part of measures to reduce the cost of doing business in Nigeria by providing corporate income tax relief to qualifying companies making investments in industries designated as “pioneer”.
“In Pursuit to the Industrial Development Income Tax Relief Act,No 22 of 1971,the Pioneer Status incentive grants companies making investments in quality industries and products a tax holiday from the payment of company income tax for an initial period of three years, extendable for one or two additional years.”
The Minister said that the pioneer status review was to support the administration’s economic recovery and growth plan and to capture the current realities that would enable the realisation of the growth plan.
He had said, “We have tried to remove all ambiguities in the definition of industries by reclassifying industries according to the international standard industrial classification, which is the same standard used by the Nigerian Bureau of Statistics.
“We also agreed that the pioneer list should be reviewed every two years and that in the case of additions to the list, it will be affected immediately.”
But, among several other stakeholders, the government policy has angered the Manufactueres Association of Nigeria (MAN) which expressed disgust that cement manufacturers were excluded from the policy as it was taken that the country had already become a net exporter of the product.
Commenting on what the association considered a misnomer, MAN told Daily Sun last week, that it had written a protest letter to the Acting President, Yemi Osibanjo, on behalf of its members in the cement sector.
According to the MAN President, Frank Jacobs, the association is unhappy that government by mere assumption that cement is now being exported removed the product from the pioneer status list.
“The review removed certain industries from the list and players in the cement industry are not happy. It is unfortunate for government to believe that what we have achieved in the sector is enough.
“We are not there yet, the sector is not fully matured, lots of projects are going on and if the sector is removed, the investors may not be able to complete them and may think Nigeria is not serious”, he said.
Though the minister said there was multi-stakeholder engagement involving the public and private sectors in identifying the industries suitable for the pioneer incentive scheme, the MAN president said the association knew nothing about the policy and only read and heard it in the media.
“We are not happy that practitioners were not carried along in this policy regime unlike in the past, at least we would have been able to offer appropriate advice. In fact we have written a letter of protest to the Acting President, which I have signed today”, he stated.
He however said MAN was not against the policy, but the exclusion of some of its members industries, adding that pioneer status is an incentive that would attract more people to invest in the Nigeria’s economy.
He stated,”Incentive is meant to attract more investors. It is good to attract local and foreign direct investment, which would make up for the deficiency in our infrastructure, reduce multiple tax, lower cost of production, helps in creating more jobs as well as create wealth for the country.”
For his part, the Regional President of the IndustriALL Global, and General Secretary of the National Union of Textile Garment and Tailoring Workers (NUTGTW), Issa Aremu, also faulted the exclusion of textile manufacturers from the pioneer list, which rather gave consideration to the manufacturers of machines for textile companies.
He had said, “While we commend the approved goverment tax Relief for some 27 pioneer Industries in Nigeria, we think it should have included existing textile companies.
“All the value chains not Textile machine manufacturers and some film producers deserve government support. The National Industrial Promotion Council (NIPC) must revisit this policy to make it more inclusive.”
Also reacting, Partner, Bloomfield Law Practice, Mr. Ayodele Oni, said the Industrial Development (Income Tax Relief) Act Cap I17 LFN 2004 (“IDA”) defines Pioneer Status as a trade and commerce incentive provided to companies that provide goods and services in specific delineated sectors of the Nigerian economy, giving them a 3 year tax holiday which may be extended for up to 2 years.
Oni, maintained that he does not expect that there would be any changes regarding the power and mining sectors as these already enjoyed pioneer status before now.
‘‘Hence, much more is required to ensure that the sectors are more attractive. For the mining sector, there had, broadly speaking, been no effective policy prescriptions, poor fiscal regime and lack of sufficient government support for downstream mining, which explains why the sector has not taken off. The power sector on the other hand has had its challenges with tariffs and lack of discipline particularly as regards collection of tariff.
Thus, it will be wrong to state that these industries are just enjoying pioneer status and that same could lead to an improvement in those sectors,’’ he said.
However, he said looking at the issues from another point of view, to the extent that software production and such other industries and or sectors enjoy pioneer status, they may better support the power and mining sectors and this may have a positive multiplier effect on these sectors.
‘‘Other than the foregoing, we do not expect that the expansion of the list would improve power and mining substantially but those other sectors now included may thrive a bit better. However, it is pertinent that holistic view continues to be taken regarding the ease of doing business in Nigeria,’’.
According to Professor Sani Badayi, a lecturer at Bayero University, Kano the tax holiday policy has been in existence for a long while, especially for developing countries. The impact of the policy on the economy is to ease business at the early stage of development. It is also called fresh investment or newly-established investment as it also serves as incentives for existing investment. So, tax holiday is an incentive for investors. The policy is not forever. It is sometimes between two and three years. This is to enable them move their equipment down either from neighbouring countries or from Europe so that they can invest in our economy. The policy is not new but it is being made more emphatic now. It is given to selected companies – those that are expected to generate jobs. Those that will provide capital and indirect skills to employees and it is expected that when they invest, the whole economy will bolster.In terms of job creation, it will boost both the material and human resources because material resources cannot do it alone. It needs human resources. So, in that respect, there will be job creation.
Meanwhile, the Executive Secretary, NIPC, Yewande Sadiku, had explained that companies that would enjoy pioneer status were only those that ventured to invest in industries that were either non-existent at all, or the country did not have sufficient presence for its economic development.
Sadiku said businesses that have existed for several years in a particular sector may not enjoy the pioneer status, except such companies ventured into a brand-new line of business covered under the list of 27 new industries and products.
“The pioneer status actually applies to those involved in their first year of business or operations. Clearly those older than that would not benefit,” she explained.
Benefits
The pioneer status grants companies making investments in qualifying industries and products a tax holiday from the payment of company income tax for an initial period of three years, with the possibility of an extension for one or two additional years.
According to the Director General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, those incentives could never be too much for the real sector.
Yusuf said what the country needed most now was private sector investments, hence government should do all it can to encourage the investors, adding that it is an instrument globally accepted to develop the economy.
The LCCI director general, said the investments goes beyond revenue generation as the incentives would attract more investors that would generate jobs.
He noted that high unemployment results in social vices, which quest for revenue generation cannot curb. He argued that the consequences of social vices go beyond revenue generation.
The LCCI director general however said the tax relief incentive would aid in curtailing vices resulting from unemployment and boost security as youths would be gainfully engaged and less disposed to crime.
“If the industries come, revenue will surely come. It is about long term, the bigger picture that the investments would bring to the economy and not the immediate gain”, he said.