The new tax reforms targeting Free Trade Zones, proposed by the Tinubu administration have received some kicks by the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) as regards the retrogressive effects it could have on the Nigerian economy. The issue NACCIMA raised in a statement through its National President, Dele Oye appears quite instructive on how this new tax reform could drastically reduce the inflow of foreign direct investment (FDI) into the country.
The Nigerian Tax Bill 2024 proposed by the Oyedele Presidential Committee on Tax Reforms has proposed the expunging of some sections of the Acts establishing the Nigeria Export Processing Zones Authority (NEPZA) and Oil and Gas Free Zones Authority (OGFZA), which provided tax incentives for Special Economic Zones (SEZs) scheme.
The removal of these tax incentives is what NACCIMA criticised as being counterproductive. There may thus be a need to assess the pros and cons of these tax reforms critically and ensure that the gains exceed the losses, otherwise, the reforms could be a case of “motion without movement.” Accordingly, the proposed removal of tax incentives and their effect on the overall health of the Nigerian economy are worth evaluating.
In the quest to enhance the country’s industrialisation and investment objectives through the attraction of foreign capital, the Nigeria Export Processing Zones Act (NEPZA) in 1992 through some of its sections, namely Sections 57, 60, 198(2) and 198(3), provided for tax exemptions for businesses operating within the Free Trade Zones. This has led to a boom in the sector and an enhancement of foreign capital inflow into the economy, especially the much sought-after FDI and the creation of much-needed jobs for the ever-growing labour force in the country. This remained the policy for FTZs until the proposal by the Taiwo Oyedele tax reform committee came on stream. It is, however, good to note that this tax reform bill is currently before the National Assembly before being passed into law.
The issues raised by NACCIMA are many. First, under the current framework, out of the existing 50 FTZs, 48 were developed through private-sector investments. It further stated, “Sections 8 and 18 of the NEPZA explicitly exempted approved enterprises from all federal, state, and government taxes, creating an attractive investment environment.” And that “The tax exemptions within these zones have been crucial in attracting investors, creating jobs, and generating over N650 billion in government revenue through Customs duties and related economic activities.”
In closing, NACCIMA asserted, “This policy summersault through legislation is bound to shake everything in Nigeria, if not carefully handled, as it has already slowed down activities in the FTZs, while potential new investments are held.”
In managing the Nigerian economy, there would always be trade-offs in the implementation of economic policy. No one wins it all. The critical issue is ensuring that for any policy enunciated by the government, the gains exceed the losses. Nigeria is in a dire strait to attract foreign investments and to this extent, the lamentations by NACCIMA need to be given serious attention.
With current developments in the global economy, oil prices have experienced some measure of decline. This is more so with the proposed resolution of the crises in Ukraine and Russia and the ensuing relative stability in the Middle East where the Donald Trump administration of the United States of America is bent on restoring peace to that troubled region. If that happens, oil production in the Middle East and Russia would resume unhindered and oil prices may stabilise for a reasonable length of time.
All these have implications for foreign exchange inflow into the country (Nigeria). Already remittance inflows are currently being threatened with the spate of present and proposed deportations of Nigerians from the United States and possibly elsewhere. Hence, an effort should be made to sustain the inflow of foreign capital into the country through the FTZs by taking a second look at the proposed removal of the tax incentives, as suggested by the Oyedele committee, being enjoyed by businesses in the zone.
It is believed that the effect of removing the tax incentives, in line with the thinking of NACCIMA, would be far-reaching and thus would need to be properly evaluated by the National Assembly in the overall review of the Nigerian Tax Bill 2024. What can be done by the National Assembly about this could be the call for a public hearing on the operations of the FTZs and the tax incentive issue. Yes, the government needs more revenue to support its fiscal operations.
However, it must be noted that promoting private enterprise through the inflow of foreign investments would be more beneficial to the growth and development of the Nigerian economy than just seeking more money to balance the budget.
At the same time, change is the only permanent feature of existence; and so, there may be a necessity to revisit the tax incentives and other operational conditions and stipulations to address new circumstances. For instance, did the government envisage all the types of companies or businesses now operating in the Trade Free Zones? Are all of them complying with the rules, or are there variations in the businesses to warrant a review of operating benefits including taxes? Besides, are rules and incentives not open to review and variations over time, to reflect changing circumstances? All these are questions that need to be investigated by the National Assembly in its consideration of the tax reform bills, while at the same time giving due regard to the sanctity of agreements.
Overall, the government through the legislative and executive arms should painstakingly scrutinise the tax reform bills to ensure that foreign countries are attracted to the country and that those operating now or in the future should not undercut the country’s desire to generate revenue for critical development. The two objectives are achievable simultaneously.
