New Finance Bill in Nigeria To Revise PSI

New Finance Bill in Nigeria To Revise PSI

FG set to free up funds come next year by revising the Pioneer Status of at least 172 companies

The New Finance Bill in Nigeria to Revise PSI (Pioneer Status Incentive) is the latest major highlight the Finance Bill 2022 is set to feature.

Consequently, no less than 172 companies are expected not to benefit from the approximately ₦2.4tn tax waivers, as the 2022 Finance Bill, which President Muhammadu Buhari, recently forwarded to the National Assembly aims to scrap it.

Affected sectors of this move include; Manufacturing, solid materials, pharmaceuticals, information and communication technology, trade, construction, waste management, and more.

These companies include Dangote Coal Mines Limited, Seven/Up Bottling Company Limited, Mikano International Limited, Corinthia Villa Hotel & Suites Limited, Red Star Oil and Gas Limited, Emzor Pharmaceutical Industries Limited, and Segilola Resource Operating Limited.

On the flip side, even though the aforementioned 172 companies will no longer benefit from waivers, Zainab Ahmed, Minister of Finance, Budget, and National Planning, the bill reiterated that the revenue recovered will be channelled to the execution of the 2023 budget as the government intensifies efforts to increase tax revenue.

Previous Projections

Although the Federal Government had previously projected in the Tax Expenditure Statement (TES) in the Medium-Term Expenditure and Fiscal Strategy Paper 2023 – 2025, that it would forgive ₦2.4tn in revenue to the company income tax relief between 2022 and 2024, that may no longer be the case, due to the latest development.

The document revealed that the Federal Government projected that the tax waiver would cost ₦658.08bn, ₦789.70bn, and ₦947.64bn in 2022, 2023, and 2024 respectively.

New Finance Bill in Nigeria To Revise PSI: Background to the PSI

For a while now, certain Nigerian companies have enjoyed significant tax waivers which have been offered under the Industrial Development Income Tax Act with tax reliefs for three years, while some are waiting to be added to the list.

The waiver was granted by the Federal Government and it is known as the Pioneer Status Incentive (PSI).

Among those that qualified for PSI are certain businesses operating in 71 different sectors or industries in the country.

The products or companies qualified for PSI are those that do not already exist in the country.

According to the Q2 2022 report by the NIPC, 47 new applications were submitted in 2022, with 21 in Q1 2022 and 26 in Q2 2022.

It was recently reported that the Federal Government recorded ₦16.76tn foregone revenue to tax reliefs and concessions given to large companies between 2019 and 2021.

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The TES report (Revenue forgiven)

The Tax Expenditure Statement (TES) deals with revenue forgiven on Company Income Tax (CIT), Value Added Tax (VAT), Petroleum Production Tax (PPT), and Customs Duty.

In the TES report for 2019, it was noted that the Federal Government had forgiven a revenue of ₦1.1tn for CIT and ₦3.1tn for VAT, making a total of ₦4.2tn revenue forgiven.

However, the revenue forgiven from Customs Duty, Excises, Petroleum Production Tax, Personal Income Tax, and concessions under the Oil and Gas Zones legislation is yet to be computed, which means the total amount might exceed ₦4.2tn.

By 2020, the figure increased to ₦5.8tn, with ₦4.3tn forgiven under VAT; ₦457bn under CIT; ₦307bn under PPT, and ₦780bn under customs duty.

By 2021, the figure rose to ₦6.79tn, with ₦3.87tn forgiven under VAT, ₦548.40bn under CIT; ₦337.70bn under PPT; ₦1.84tn under customs duty; and ₦111.15bn under imports VAT.

For the three years, therefore, the Federal Government had to forgive a total of ₦16.79tn in tax reliefs, Customs duty waivers, and concessions.

Areas of focus for the 2022 Finance Bill

Addressing State House correspondents after the Federal Executive Council meeting presided over by Vice President Yemi Osinbajo last Wednesday, the finance minister, Zainab Ahmed said that the 2022 finance bill would focus on the five following areas:

1. Tax Equity: The goal of the tax equity reforms is to fight tax evasion and other illegal taxation practices that some Nigerian companies engage in.

2. Climate change and green growth provisions: The climate change green growth focus will complement non-fiscal reforms that are formulated to lessen greenhouse emissions.

It will also encourage domestic and international investment in climate adaptation, as well as mitigation, and also improve green growth and create jobs.

3. Job creation and economic growth: The third area is designed to complement the comfort of doing business and other reforms to aid capital formation by the private sector as well as foster enabling business environments for micro, small, and medium enterprises for youth as well as women in businesses.

4. Reforming tax incentives: The fourth area will wipe out antiquated pioneers, and other tax incentives for developed industries, and arrange a revised set of incentives for real infant industries.

Through economic governance reforms, efforts have also been made to reduce tax expenditure, which is equivalent to forgiven revenue to support fiscal space.

5. Revenue generation and tax administration: The fifth area will focus on generating more revenue and enhancing tax administration.

Key Changes Made By The Bill

The key areas to adjust in the new Finance Bill will be across these tax laws:

1. Capital Gains Tax Act (CGTA)

2. Companies Income Tax Act (CITA)

3. Customs, Excise Tariff, Etc

4. Personal Income Tax Act (PITA)

5. Petroleum Profits Tax Act (PPTA)

6. Value Added Tax Act (VATA)

The Bill made a lot of changes and here are some of them:

1. Profits derived by a company from gaming, betting, or lottery business are to be taxable under the Companies Income Tax Act.

2. An import levy of 0.5% to be exacted on all eligible goods imported into Nigeria from outside Africa to support Nigeria’s capital contributions, subscriptions, and other financial obligations to various multilateral institutions such as the AU, UN, etc.

3. The partial tax exemption from CIT awarded on income in exchangeable currencies gotten from tourists by a hotel is to be rescinded.

4. The CIT rate for a gas-flaring company is to be raised from the normal 30% to 50%.

5. Earnings gotten from digital assets such as cryptocurrency are to be taxed under the capital gains tax act at the rate of 10%.

6. All services rendered in Nigeria are to be subject to excise duty at rates to be stipulated via a Presidential Order.

7. Revision of the Customs & Excise Tariff Act to elucidate the obligation and powers of the finance minister to review customs and excise tariffs through the Tariff Review Board.

Pioneer Status Incentive (PSI) Explained

The Pioneer Status Incentive (PSI) is a tax holiday that gives qualifying industries and products relief from payment of corporate income tax for an initial period of three years, extendable for one or two additional years.

It was established by the Industrial Development (Income Tax Relief) Act, No 22 of 1971.

Companies that qualify for pioneer status also enjoy the benefits of exemption from a 10% withholding tax on dividends paid out of business earnings.

The pioneer status is administered by the Nigerian Investment Promotion Commission (NIPC).

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