Exemption of Profit Order
Why is Industry frigid?
The Federal Government issued the Companies Income Tax (Exemption of Profit) Order (The Order) on 27 April 2012 to drive significant reduction in unemployment and boost private sector investment in the economy. The Order stipulates certain package of incentives to realise these objectives.
The Federal Government of Nigeria has never disguised its desire to promote job creation and engage the teeming unemployed youths available within the economy annually.
According to the National Bureau of Statistics, the unemployment rate in the country stands at 7.5%, translating to about 17.7 million people between ages 15-65 either unemployed or underemployed as at the end of first quarter of 2015. This is not a befitting state of play.
Three years before, the Federal Government issued the Companies Income Tax (Exemption of Profit) Order (The Order) on 27 April 2012 to drive significant reduction in unemployment and boost private sector investment in the economy. The Order stipulates certain package of incentives to realise these objectives.
Specifically, the Order provides for three different tax incentives namely:
- Employment Tax Relief (ETR);
- Work Experience Acquisition Programme Relief (WEAPR); and
- Infrastructure Tax Relief (ITR).
These incentives are targeted at encouraging specific corporate behaviours.
The ETR entitles companies who employ fresh graduates and satisfy other criteria to an income tax exemption of five per cent of their assessable profits. This is however restricted to gross salaries paid to the qualifying employees.
Similarly, companies with a minimum net employment of five new employees; who retains them for a minimum of two years are entitled to WEAPR. This tax incentive affords such companies an income tax exemption of five per cent of their assessable profits at the end of the second year of employment of the qualifying employees.
In the case of ITR, a tax relief of thirty percent of the cost incurred by a Nigerian company in providing infrastructures or facilities of a public nature is granted against the company's income. This is in addition to the total cost of the infrastructure/facilities provided, which is deductible from the company's income for tax purposes.
Given that the above incentives have been available to companies for the past three years, it is important to examine at this time, if the Government has achieved the objectives for which the incentives were introduced. The inevitable reality in 2015 is that there has not been any significant increase in the employment rate compared to 2012 when the Order was issued.