INCENTIVES FOR INDUSTRIAL AND AGRICULTURAL INVESTMENTS
1.1 INCENTIVES TO INDUSTRIES
With 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:-
Enterprises which fulfill the necessary criteria are free to apply for the following specific incentives:
1.1.1 Pioneer Status – 100 per cent tax free period for 5 years for pioneer industries that produce products declared as "pioneer products" under the Industrial Development (Income Tax Relief) Act, or such other deserving enterprises as may be approved by the Council of the Nigerian Investment Promotion Commission – (NIPC)
1.1.2 Local Raw Materials Utilization – 30 per cent 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%
1.1.3 Labor Intensive Mode of Production – 15 per cent 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 per cent tax concession while an industry employing 100 will enjoy only 6 per cent, while those employing 200 will enjoy 7 per cent and so on.
1.1.4 Local Value Added – 10 per cent 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.
1.1.5 In-Plant-Training – 2 per cent tax concession for five years of the cost of facilities provided for training.
1.1.6 Export-oriented Industries – 10 per cent tax concession for five years. This concession will apply to industries that export not less than 60 per cent of their products. The emphasis is on the encouragement at the pre-establishment stage of export-oriented enterprises.
1.1.7 Infrastructure – 20 per cent of cost of providing basic infrastructure such as roads, water, electricity where they do not exist is tax deductible once and for all.
1.1.8 Investment in Economically Disadvantage Areas – 100 per cent holiday for 7 years additional 5 per cent depreciation allowance over and above the initial capital depreciation.
1.1.9 Research and Development (R and D) – 120 per cent tax deductible expenses provided the research and development is carried out in Nigeria; and 140 per cent for R and D on local raw materials.
1.1.10 Abolition of Excise Duty – In order to boost local industries, stimulate trade and reduce cost, government has decided that all excise duties are abolished with effect from 1st January, 1998.
1.1.11 25% Import Duty Rebate – The import duty rebate was introduced to ameliorate the adverse effect of inflation and to ensure increase in capacity utilization in the manufacturing sector. In order to sustain the moderating effect of duty rebate on the economy, the following will apply with effect from 1st January, 1998.
The incentives itemized 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.
1.1.12 Double Taxation Agreements – Double Taxation Agreements are being negotiated and concluded with various countries. The effect is to eliminate double taxation on investment income.
1.1.13 Re-Investment Allowance – This incentive is granted to companies engaged in manufacturing which incur qualifying capital expenditure for the purpose of approved expansion, etc. The incentive should be in form of a generous allowance of capital expenditure incurred by companies for the following:
This scheme aims to encourage re-investment of profit,
1.1.14 Investment Tax Allowance – 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.
1.2 INCENTIVES TO AGRICULTURE
Without prejudice to government’s commitment to deregulation’s of the financial sector, banks have been enjoined to recognize in the gestation periods within each category of agricultural projects and observe the grace periods on agricultural loans as outlined below:
1.2.1 Crops
1.2.2 Livestock
1.2.3 Fisheries
12-18 months for aquaculture
1.2.4 Forestry and Wild Life
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 SECTOR
To supplement its rich oil mineral resources, serious efforts are being made by Government to develop Nigeria’s non-oil exports.
2.1 EXPORT INCENTIVES
Various legislation’s 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.
2.1.1 Retention of Export proceeds in Foreign Currency
Under this scheme an exporter of Nigerian commodities is obliged to open a Foreign Currency Domiciliary Account ("D/A") with an authorized bank of its choice in Nigeria into which 100% of the proceeds of such export may be credited in foreign currency.
2.1.2 Export Development Fund ("EDF" or "Fund")
The EDF is 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:
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, etc. 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 authorized application forms from NEPC and accompanied with a detailed work plan of the project to be undertaken plus a detailed report of past activities.
2.1.3 Export Expansion Grant Fund Scheme ("EEGF")
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 (EFG) 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.
2.1.4 Duty Draw-back/Suspension and Manufacture-in-Bond Scheme
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 drawback payments, the actual exportation of the product 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 guarantee 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")
2.1.5 Export Adjustment Fund Scheme
This scheme serves as a supplementary export subsidy to compensate exporters for (a) the high cost of local production arising mainly from infrastructual deficiencies and (b) other negative factors beyond the control of the exporter.
2.1.6 Nigeria Export Import Bank
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 and exporter education services and guarantees to enhance its functions. Exporters have access to these facilities only through commercial and merchant bank operating in the country. Advisory and marker information services may 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.
2.1.7. Rediscounting of short-term Bills
This scheme provides for an exporter of any product to discount
his Bill of Exchange and promissory notes with his bank.
2.2. EXPORT PROCESSING FREE ZONE SCHEME
This scheme was established in 1991 and allows interested persons to set up industries and businesses within demarcated zones ("EPZ zones") principally with the objective of exporting the goods and services manufactured or produced within; the zones. Calabar, in Cross River State of Nigeria, 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 exchange, 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.
2.2 TAX AND OTHER INCENTIVES
The provision of the Industrial Development (Income Tax Relief) Act with respect to Pioneer States tax holidays applies to any manufacturing exporter who exports at least 50% of his annual turnover.
Tax Relief on Interest Income
Interest accruing from loans granted by banks in aid of export activities enjoy favorable tax treatment.
Capital Assets Depreciation Allowance
The law in Nigeria provide an additional annual depreciation allowance of 5% 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.
2.3 PROCEDURE FOR EXPORT
With the abolition of the need for export license in 1986, the procedure for export in 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-in-Nigeria goods. The relevant Application form which can be obtained from any of the NEPC Zonal offices at 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, etc. As soon as an agreement is executed and in place, the exporter can proceed to obtain from his bank, the CBN, the NEPC, or the Federal Ministry of Trade, a Form NCD 3 (A) (Foreign Exchange Control Form). This Form when completed and submitted is to ensure the repatriation of the required proceeds of exports.
2.5 EXPORT PROHIBITION LIST
The Export (Prohibition) Act prohibits the exportation of certain foodstuffs and other specified items from Nigeria. The prohibited items are: -
Raw hides and skin, Timber (rough or sawn), Scrap metals, Unprocessed rubber latex and rubber lumps, Rice, Yams, Maize, Cassava, Beans, (*Artifacts and antiquities)
A current list of exportable product can be obtained at any time from any of the zonal offices of the NEPC.
2.6 EXPORTATION OF RAW AND UNPROCESSED GOODS AND COMMODITIES
– A CLARIFICATION
The export (Incentives and Miscellaneous provision) Amendment Decree of 1992 prescribe that all raw or unprocessed commodities whether mineral or agricultural shall be exportable on the payment of a levy as may be prescribed from time to 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 license, provided all existing foreign exchange regulations are complied with. But this is without prejudice to the current export prohibition list.
2.7 IMPORT PROHIBITION LIST – 1998
Page Transmitted 14 January 2003
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