Pioneer Status & the Return of the 3-Year Rule: Weep Not Taxpayer

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Pioneer status & the return of the 3 year rule

Weep not taxpayer

By virtue of the express provisions of the Industrial Development (Income Tax Relief) Act (”IDITRA”), the Pioneer Status is to be granted for an initial period of 3 years with a possibility of an extension for another 2-year period. However, in practice, NIPC had in the last 14 years, granted pioneer status to successful applicants for a straight period of 5 years.

No doubt, the most omnibus incentive regime in Nigeria is the Pioneer Status certification, which until recently had granted a tax holiday to a successful applicant for straight 5 years. It has also come to gain the reputation of being the most abused in certain quarters. Nigerian Investment Promotion Commission (NIPC) is the agency which administers the grant of Pioneer Status in Nigeria.

By virtue of the express provisions of the Industrial Development (Income Tax Relief) Act (”IDITRA”), the Pioneer Status is to be granted for an initial period of 3 years with a possibility of an extension for another 2-year period. However, in practice, NIPC had in the last 14 years, granted pioneer status to successful applicants for a straight period of 5 years. This practice was not the result of arbitrariness but in consideration of the need to eliminate a renewal/extension process that had become a maze of bureaucratic bottlenecks and constraints with such concomitant effects as:

  • Increase in the cost of doing business;
  • Exposure of sincere investors to a difficult investment experience; and
  • Poor competitiveness of Nigeria relative to major countries in Africa as an investment destination.

The crash in crude oil prices 'unanticipated' by the then Federal Government resulting in significant cash flow challenge and the desire to address this challenge, brought under review the administration of pioneer status by NIPC. Naturally, a tax relief granted for any period will impact government take from those operations or sectors negatively by reducing the feasible quantum of revenue that is accruable.

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