Nigeria tax bill 2024 as industrial policy instrument

The Nigeria Tax Bill 2024 is not just about collecting taxes from the people. It is also a credible industrial policy instrument that, if properly utilised, could help Nigeria tackle its age-long stunted economic progress. It presents a handy manual to pursue the much-talked-about diversification of the economy. However, its success ultimately depends on the implementation, by both the government and the target investors.

Through the provisions listed in Sections 167 to 185, further elaborated in the 11th schedule, the bill proposes tax credit as an incentive to boost and empower the domestic economy to take off in the true sense of the word. The innovative delineation of priority sectors “for purposes of economic development tax incentives” over a “priority period” must be encouraged to achieve its purpose.

In the eleventh schedule, the bill identifies the following areas as priority sectors: agriculture and food, energy, mining and quarrying, health, and creative sector and communications technology. Others are building and operation of utility projects, chemical and building materials, and steel and metal. Finally, there are also transportation, industrial machinery, environment, textile production, other manufacturing, and services.

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Under each sector/subsector are listed several activities/product lines that qualify for an economic development incentive certificate. In the agriculture/food sector, for instance, it lists nine subsectors, ranging from crop production, and forestry, to aquaculture qualification.

The president may direct an amendment to the list, to include a sector that he believes is not operating on a scale suitable to the economic requirements of Nigeria, or one with favourable prospects of further development. The president could also make such an order in situations where it becomes necessary in the public interest to encourage development or establish a sector in Nigeria to generate employment, attract FDI, diversify the economy, and stimulate growth in other sectors.

A company operating in a priority sector benefit through an economic development tax credit, which is the tax payable on the profits of a priority product or service in any year during assessment during its priority period. The company can use this tax credit to offset any tax payable for any year of assessment during the priority period. This means that taxes should not constitute a fiscal drag on the economy.

This reminds me of the infant industry policy thrust of yesteryears. It sought to encourage local industries by granting them various incentives. The thrust of that policy was “protection” from competition from older, more established foreign producers. Unfortunately, year after year the infants refused or were unable to grow, casting doubts on the efficacy of that prescription as a method of inducing growth domestically.

To guard against abuses in this new effort to spur local industrial development, the bill sets criteria that define who qualifies for the incentives. It also sets thresholds in terms of amounts to be invested in a particular product line.

The bill also sets the sunset for each product group or line. “Sunset’ in the context of the eleventh schedule to this part means the period counting from the date of enactment of this Act after which a sector, industry, or activity shall cease to be eligible for the economic development incentive subject to subsection 184(3) of this Act,” the bill says.

A look at the sunsets stipulated for the various products/activities reveals the government’s thinking about the speed at which development should take place in the various sectors. Interestingly, the sunsets range from 20 years, the longest, to 10 years, the shortest. For instance, in the agriculture/food subsector, the sunset ranges from 20 years for crop production, aquaculture, forestry, and livestock, to 12 years for the manufacture of dairy products, and manufacture of starches and starch products.

Surprisingly, the 10-year sunset applies to some of the activities listed under the industrial machinery sub-sector. These include the manufacture of power-driven hand tools, manufacture of general-purpose machinery, manufacture of metal-forming machinery and machine tools, and the manufacture of machinery for paper and paperboard production.

The government also expects that in 10 years an investor who deploys the threshold amount in this sector should be able to fully develop capability for the manufacture of machinery for metallurgy. In specifics, the priority products or services it targets here are the production of machines and equipment for handling hot metals (converters, ingot moulds, ladles, casting machines; metal-rolling mills, and rolls for such mills. What the government is saying here is that with a threshold of N5 billion investment, a company that enjoys tax incentives should within 10 years achieve the capacity to stand on its own.

In this particular case, I have our steel sector on my mind, and specifically Ajaokuta. Nigeria began the construction of the steel company in 1979 and by 1994, according to history, it was 98% completed. Yet today, some 45 years later, Nigeria is still dependent on imported steel products.

The shorter sunsets set for this subsector, in my view, presupposes that a combination of foreign and local technological capacity should be able to raise Nigeria’s ability to sustainability. This should be of interest to our tertiary institutions – the engineering and related departments of the universities and polytechnics.