More on the ‘modified’ pioneer status law
Criticising the Nigerian government, as I do very often, is an easy job – all you have to do is wake up in the morning and the government is guaranteed to provide you with material. But this also means that one should be fair to them – after all, if I’m proved wrong, it only means Nigeria is improving which is surely the goal of any criticism.
A few days ago, a friend of mine ‘set me up’ under the guise of introducing me to Yewande Sadiku, the Executive Secretary and CEO of the Nigerian Investment Promotion Commission (NIPC). The NIPC is the government agency in charge of the ‘pioneer status’ law (among other things) which I have spent a lot of time criticising including in my Guardian column here on the 15th of August.
Several emails and phone calls later, and after we went through my article quite literally line by line, I think it is good and proper to write an update/rejoinder to that article. Don’t worry, she didn’t shout at me and neither did I insult her – it was a very polite and engaging conversation all through. And no, she didn’t give me money to write this update either.
Here are the things I learnt from my conversation with her:
The ‘pioneer status’ law has been in place since 1971 and changing it will take quite a lot of effort given the dynamics of lawmaking in Nigeria. Thus, the ‘modifications’ announced in August of this year were regulations to go along with the law as opposed to changing the law itself. This is important to note because it helps to understand the constraints within which the regulations were made.
She made a very good (and convincing) argument that the word ‘pioneer’ is not to be taken literally according to the law. It is not a word that is included in the law – what the law actually says is ‘company income tax relief’. Given this, the argument I have always made about the kind of activity that benefits from pioneer status is perhaps weaker than I realised based purely on how the law was written. It has nothing to do with whether the activity is risky or untried – based on the law, every business activity is pioneer. An example she used is that while voice business of a telco can be said to be mature, data services can qualify for pioneer as the number of Nigerians who use data is still not yet sufficient for Nigeria’s economic needs. The law is the law.
So, what has actually changed with the new regulations? The last time the list of industries qualifying for pioneer status was updated was in 2006. Starting this year, the list will be updated every 2 years (at most). Before now, there was also no provision to remove industries from the list – that has now changed as the regulation now has a mechanism by which industries which no longer need to be on the list can be removed.
If additions and subtractions to the list will now be a regular thing, what criteria will be used? This will be handled by a committee made up of NIPC, FIRS, NBS, Special Adviser to the President on Economic Matters, members of the Organised Private Sector and the ministries of Industry, Finance and Budget and Planning. The logic behind this is to cover the NIPC’s blind spots so they’re not writing and editing their own lists. Further, they have also added a mechanism by which members of the public can write to them, with justifications, suggesting why an industry should be added or removed from the list.
The previous application form was 2 pages long. Now it has been increased to 8 pages to allow NIPC collect more information such as the companies’ plans relating to export development, import substitution, technology development and skills transfer. Collecting this information leads nicely to the next point…
Beneficiaries must now submit an annual performance report which will cover things like the number of Nigerians employed and in what positions as well as the percentage of the total remuneration that went to Nigerians (as long as this is for data gathering purposes and not used to harass companies as ‘unpatriotic’, I’m cool with it). This will form the basis of a report by NIPC that tells Nigerians how the pioneer status is benefiting them and the country. BudgIT has been hired to help with making it readable and easy to digest.
A seemingly small change that I really liked – the list of industries on the pioneer list will now be based on the global International Standard Industrial Classification of All Economic Activities (ISIC). What makes this useful is that the NBS uses the same ISIC in gathering economic activity data to measure GDP. I like to see examples of government agencies working together and making the process as seamless as possible. They don’t announce this kind of stuff on the news but it’s one of those cornerstone bricks you build a house with. (Let me do small ‘amebo’ (gossip) – Yewande and Yemi Kale of the NBS used to work together at Stanbic IBTC. Maybe this helps. I hope it does).
An area we both agreed on is that if this is done right, it’s a good long-term investment by the government in terms of broadening the tax base. Pioneer is only useful to you if you make profits. Once you have made profits for 3 years, the tax man will know this so after your pioneer status ends, it will be difficult for you to then claim that your profits have magically evaporated.
Ultimately, the law will need to be properly amended by the National Assembly. But I found her to be sincere in her acceptance of the constraints with the current law and her efforts to make it work better.
As I like to say of people who are doing their level best to turn the wheels of progress in the difficult operating environment of Nigeria – she’s profitable for the journey.
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