Senate Passes Industrial Development (Income Tax Relief) Act (Amendment) Bill 2018
April 24, 2018
The Senate passed the Industrial Development (Income Tax Relief) Act (Amendment) Bill 2018 (The Bill) on 12 April 2018. Amongst other provisions, the Bill seeks to provide for additional incentives for some categories of investments and increase the value of the minimum qualifying capital expenditure (QCE) required from companies applying for Pioneer Certificate. The Bill, which was passed earlier this year by the House of Representatives, now awaits harmonisation by the two legislative houses and presidential assent before its provisions will become effective.
The Pioneer Certificate grants tax holiday to companies making investments in designated industries and/or products for an initial period of three years, extendable for one or two additional years. The Bill seeks to amend Sections 1, 2, 3, 11 and 25 of the Industrial Development (Income Tax Relief) Act (IDITRA) by introducing the following changes:
- The Bill provides that companies that are in the process of expanding their operations to cover Pioneer Industries and/or Products will be eligible for the issuance of the Pioneer Certificate. In addition, companies whose applications were previously denied on the grounds of expansion will be able to reapply for fresh consideration;
- The Bill also proposes to increase the estimated cost of QCE to be incurred by a company that intends to apply for a Pioneer Certificate as follows:
- In the case of an indigenous controlled company, QCE should not be less than N 100 million;
- In the case of any other company, QCE should not be less than N 120 million;
- The Bill retains the powers of the President to amend the list of Pioneer Industries and Product (Pioneer Status List). However, the Bill seeks to introduce a proviso that there has to be a three-year notice before the commencement of such amendment;
- The Bill also mandates the President to issue a notice of approval or disapproval within 1 year of the application for Pioneer Certificate;
- In addition, the Bill seeks to ensure that all pending applications for Pioneer Certificates made before the deletion of a particular industry or product from the Pioneer Status List would be processed by the Minister and forwarded to the President for approval or disapproval, notwithstanding the deletion of the industry/product from the Pioneer Status List;
- In line with the Pioneer Status Incentive (PSI) Regulation of 2014, the Bill provides that application for a Pioneer Certificate should be accompanied with a non-refundable fee of N 200,000 which should be credited to the Consolidated Revenue Fund;
- The Bill also seeks to introduce Section 3(6)(c) & (d) to the IDITRA which provides for additional categories of investment that will qualify for tax relief as follows:
- a company that invests in a rural area and provides infrastructures such as road, electricity, housing, water, etc. in the area may enjoy tax relief for up to 7 years.
- a company with over 90% of locally sourced inputs/raw materials and whose investment is in Agriculture and Agro-processing may be able to enjoy tax relief for up to 15 years.
The proposed amendments as contained in the Bill will have varying impacts on new and existing businesses. It is noteworthy that the proposed threshold for QCE for companies applying for the Pioneer Certificate is similar to the threshold contained in the Application Guidelines for Pioneer Status Incentive that was issued by the Federal Ministry of Industry Trade and Investment in August 2017.
However, there are concerns that Small and Medium Scale Enterprises may not be able to take advantage of the Scheme because of the proposed increment in the threshold for QCE from N10million as provided in the PSI Regulations to N100million or N120million as the case may be. Similarly, given that the Bill has been passed by the two legislative houses and now awaits harmonisation and presidential assent before it becomes applicable law, companies that have been granted Pioneer Certificates for an initial period of 3 years based on the existing threshold may not be able to re-apply as allowed by the law if they fail to meet the proposed threshold.
We will continue to monitor developments and are willing to provide relevant tax and regulatory advice to companies that require same in this regard.