February 27, 2018
On August 7, 2017, the Federal Government lifted the administrative suspension on the Pioneer Status Incentive (PSI) scheme which grants companies three to five years tax holiday. While the incentive has been in place since 1971, it was suspended in 2015 by the then Minister of Finance, Dr. (Mrs.) Ngozi Okonjo-Iweala based on perceived abuse and revenue leakages. Similarly, the National Assembly, in May 2017, raised unreserved concerns about the perceived abuse of the PSI scheme and set up an ad-hoc committee to investigate the abuse. It is against this backdrop and other issues that plagued the PSI scheme that the Federal Government issued a revised PSI framework. Key highlights of the revised PSI framework is the release of a new set of guidelines for PSI application and addition of twenty-seven (27) new industries and products. This article discusses some of the issues to consider in respect of the PSI scheme.
The existing list of eligible industries and products was reviewed with the addition of twenty-seven (27) industries while two (2) industries (mineral oil prospecting and cement manufacture) were deleted from the old list. Notable additions to the list of pioneer industries and products include manufacture of machinery for food and beverage processing; textile, apparel and leather production; e-commerce services; motion picture, video and television programme production, software development and business process outsourcing. The new additions are effective immediately following the approval of the Federal Executive Council (FEC), while the deletions will become effective after 3 years with the exception of the deletion of mineral oil prospecting which was effective immediately.
Going forward, the approved list of pioneer products and industries will be reviewed biennially. The biennial review of the PSI scheme is a welcome development as it will go a long way in attracting investments to critical sectors of the economy and also encourage the inclusion of new sectors requiring Government support, in the list of eligible industries and products.
The PSI application requirements have been reviewed and the procedure appears to be more stringent. For instance, the minimum investment in tangible non-current asset has been increased from ₦10 million to ₦100 million. While this revision has been lauded by various stakeholders, there is a concern that it will disenfranchise Small and Medium Scale Enterprises (SMEs) who otherwise, would have been eligible for the PSI scheme.
Also, companies who wish to enjoy the PSI are required to apply in the first year of production/ service while the application for extension must be submitted not later than one month after expiration of the initial three years tax holiday or the initial one-year extension. This implies that some companies that commenced business during the period of suspension may not have an opportunity to apply for the scheme, if they are no longer within their first year of production/ service. Similarly, companies who were due for extension within the period of suspension may not have the opportunity to apply for extension if the one month deadline has passed. It is expected that the Nigerian Investment Promotion Commission (NIPC) will provide further clarifications on such issues, as it will be unfair to deny otherwise qualifying companies the opportunity to apply for and enjoy PSI.