Tax holiday for manufacturers, remarkable
The downward trend in industrial manufacturing in Nigeria is not unconnected with several intractable problems facing the sector. Low capacity utilisation occasioned by huge importation has remained a recurring decimal. Goods that could be produced locally are imported from abroad, thereby strengthening the industrial base of the exporting countries while killing local ones.
Protectionist policies to save indigenous producers have been quite weak. Most companies in Nigeria are barely managing to remain in business due to keen competition with imported cheaper foreign goods. Can this unnerving situation ever change? Can Nigeria ever be a vibrant industrial nation? These have been the questions whose answers have been blowing in the wind too.
Poor electricity supply, for instance, has diminished most economic activities for there can be no industrial production without steady power supply. This has forced companies to generate their own electricity, which adds to the overhead cost. A number of companies have relocated to neighbouring countries where conditions are deemed better.Because of the very low productivity in the country, growth has been hampered. It is not surprising that a Gross Domestic Product (GDP) growth of 1.50 was recorded in Q2 of 2018, which is below the expectation of industry analysts.
The low growth and contraction across many sectors of the Nigerian economy underscores the need for an urgent set of policies and engagements to rescue the economy. Thus, the incentive to encourage local manufacturing in Nigeria is evident in the tax holiday granted to the sector in the past one year, according to recent reports.
Figures from the Nigerian Investment Promotion Commission (NIPC) show that out of the 39 companies that were granted tax holiday since August 2017, when the suspension on tax holiday was lifted, 19 manufacturing companies have had their application for Pioneer Status Incentive (PSI) approved. That is just a tip of the iceberg.
According to data from the NIPC for the period ended Q4 2018, four manufacturing companies were each granted tax holiday for the duration of three years. The companies include Lafarge Cement Plc (UNICEM), Hayat Kimya Nigeria Limited, NFE Industries and Fidson Healthcare Plc. The companies have their line of business across cement manufacturing industry, wire rods & iron bars, pharmaceutical and tissue paper.
Experts believe that giving tax holiday gears to support the manufacturing sector amid the high operating cost in terms of poor infrastructure, unavailability of steady power supply and lack of easy access to distribute manufactured products.NIPC is an agency of the Federal Government established to encourage, promote and coordinate investments in Nigeria. This is good though late in coming.
It would be recalled that on August 7, 2017, the Federal Government lifted the administrative suspension of PSI scheme, which grants companies three to five years tax holiday.While the incentive had been in place since 1971, it was suspended in 2015 by the then minister of finance, Ngozi Okonjo-Iweala, based on perceived abuse and revenue leakages, which were not rectified.
In compliance with the requirements for the Industrial Development (Income Tax Relief) Act Cap. 17, Laws of the Federation of Nigeria, 2004 and the Pioneer Status (Delegation of Certain Statutory Functions) Order of 2017, NIPC has the mandate to provide details of Pioneer Status Incentives.
Tax holiday is an incentive to various companies that invest more heavily in the industry and also employ more labour.An analysis of the quarterly report by the Commission revealed that in the period under review from Q4 2017 to Q4 2018, the manufacturing sector attracted the most credit holiday in Q3 2018 when seven companies’ applications for PSI were approved.
Under normal circumstances, the food industry sub-sector is one of the most vibrant that leverages the economy, particularly, in employment. A large segment of the workforce is employed in this sector across the chain of production, beginning from agriculture that produces the raw materials. That is why agriculture is an integral part of the food industry chain. There is need for government to give necessary incentives to the food industry sector as a way of boosting food security.
The fact that this sector deals with food, which is one of the basic necessities of life, makes it an essential partner in development. There is not a single living soul, who on daily basis does not have need for one type of food or the other, even if it is water. That is why no nation can do without the food production component in all its ramifications if it must develop.
Also, the petrochemical industry, which is supposed to be another source of raw materials, is equally inefficient. Apart from exporting the oil in crude form, the refineries that ought to process the crude oil are hardly functional. Consequently, no value is added to the petroleum resource that, ordinarily, is a wide range of industrial raw materials.
So, to reap the highest benefit, government should seek ways to expand the tax holiday regime to include many industrial manufacturing concerns across board. Besides, such a policy thrust would serve as an incentive to attract foreign direct investment to the country. This is how to migrate from rhetoric to action if we must create job opportunities too. This is how to begin building blocks to become an entrepreneurial nation.
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