In order to promote a dynamic, efficient and balanced manufacturing sector, a package of incentives should be designed to promote investment, employment, product mix and various other aspect of industry.
In general, the package of incentives can be grouped into five; these are:
- Fiscal measures of taxation and interest rates.
- Effective protection with import tariff
- Export promotion of Nigerian products.
- Foreign currency facility for international trade.
- Development Banking.
TAXATION
Fiscal measure has been fashioned out to provide for deduction and allowances in the determination of taxes payable by manufacturing enterprises. The fiscal measures targeted at aspect of industrial activities are as follows:
a) Pioneer Status
By the provision of income tax relief Act 1958 (Amended by Decree No. 22 of 1971) Public companies are granted specific tax holiday on corporate income. This is to encourage such industries that government consider beneficial to Nigeria. During the period of exemption, the companies are expected to achieve a reasonable level of profitability. The relevant company or product is declared a pioneer industry or pioneer product. This Act is applicable to both public and private limited liability companies.
The relief covers non renewable period of five years for pioneer industry and seven years for such industries located in economically disadvantaged areas.
Pioneer status relief as well as additional tax concessions is available to industrialists
who take initiative in the following areas:
- Local raw material development
- ii. Local value added activity
- Labour intensive processes
- Export oriented activities
- In-plant training
- Investment in economically disadvantaged areas.
b) Tax Relief for Research and Development
Industrial establishments are expected to engage in research and development (R&D) for the improvement of their processes and products. Up to 120% of expenses on R&D are tax deductible provided that such R&D activities are carried out in Nigeria and are connected with the business from which income or profit is derived for the purposes of R&D on local raw material 14% of expenses are allowed.' Where the research is long term, it will be regarded as a capital expenditure and it will be written off against profit in administering this tax relief the Federal ministry of finance consults the federal ministry of science and Technology to determine the genuineness of such R&D activities.
c) Companies Income Tax Act
This Act has been amended in order to encourage potential and existing investors and entrepreneurs.
d) Tax Free Dividends
An individual or a company deriving dividend from any company as from 1987 shall enjoy tax free dividends for a period of three years if:
- The company paying the dividend is incorporated in Nigeria
- The equity participation is imported into the country.
- The recipient's equity in the company constitutes at least, 10% of the share
capital of the company.
In addition to the above, if the company paying the dividends is engaged in Agricultural production in Nigeria or the production of petrochemicals or liquefied natural gas, the tax free period shall be five years.
e) Tax Relief for Investments for Economically Disadvantaged Local Governmental
Areas
Enterprises who invest in economically disadvantaged local government areas are entitled to special income and other concessions.
These include:
- Seven years income tax concession under the pioneer status
- Special concession by relevant state government.
- Additional 5% and above the initial capital depreciation allowance under the company income tax.
For the purpose of administering these incentives, the country has been grouped into the following zones;
- Industrially and economically developed local government areas
- Less industrially and economically developed local government areas
- Least industrially and economically' developed local government areas.
f) Double taxation (Income tax 19791
By Decree No 41985 (miscellaneous taxation provision) the income tax Act of 1979 was amended. The effect of the amendment was to eliminate double taxation on investment income.
g) Group of company taxation.
Companies can now pay interim company dividends without any double taxation since the amendment on franked investment income came into effect on 1st January, 1985.
