Manufacturing and Exports Incentives in Nigeria
- Exemption from tax of companies profits in respect of goods exported from Nigeria provided the proceeds are repatriated to Nigeria and used exclusively for purchase of raw materials, plants equipment and spare parts.
- Exclusion from taxes the profits of companies whose supplies are exclusively from input to the manufacturing of products for exports.
- All new industrial undertakings including foreign companies and individual operating in an Export Processing Zone (EPZ) are allowed full tax holidays for three consecutive years.
- As a means of encouraging industrial technology, companies and other organizations that engage in Research and Development activities for commercialization enjoy 20% investment tax credit on their qualifying expenditure.
- Dividends distributed by Unit in Nigeria are free of tax and no withholding tax is deducted therefrom since such incomes have already suffered tax in the first instance.
- All companies engaged wholly in fabrication of tools, spare parts and simple machinery for local consumption and export are to enjoy 25% investment tax credit on their qualifying capital expenditure while any tax payer who purchases locally manufactured plants and machinery are similarly entitled to 15% investment tax credit on such fixed assets bought for use.
Export incentives are aimed at encouraging and assisting exporters to increase and diversify the total value and volume of non-oil exports from Nigeria. Some of the incentives now take the form of Negotiable Duty Credit Certificate (NDCC) and are as indicated below:
(a) Manufacture-in-Bond Scheme:
The Manufacture-in-Bond Scheme is designed to encourage manufacturers to import raw material inputs and other intermediate products duty-free for the production of exportable goods, backed by a bond issued by any recognized financial institution. The bond will be discharged after evidence of exportation and repatriation of foreign exchange has been produced.
(b) Duty Drawback Scheme:
Duty Drawback scheme provides for refunds of duties/sur-charges on raw materials including packing and packaging materials used for the manufacture of products upon effective exportation of the final products. The new Duty Drawback scheme shall give automatic refunds (60%) on initial screening by the Duty Drawback Committee and upon the presentation of bond from a recognized Bank, Insurance Company or other financial institution.
The Bond will cover 60% of the refund to be made to the exporter. At the end of the processing of exporters claims, the Duty Drawback Committee shall grant any balance where applicable or request for refunds for any over payment made.
(c) Duty Drawback Facilities:
The scheme provides for fixed drawback and individual drawback facilities. The fixed drawback facility is for those Exporters/Producers whose export products are listed in the fixed drawback schedule to be issued from time to time by the Duty Drawback Committee. When the import content of the export produce is more or less constant, and import prizes (including exchange rate), tariff rates and technology used are relatively stable or “fixed”, it is possible to calculate a standard Input-Output Co-efficient Schedule (ICS) for these category of products on the basis of which a fixed drawback rate can be computed to be rebated per unit of export product.
Whereas the individual drawback is for producers/exporters who do not qualify under the fixed drawback facilities, it is therefore a straight forward traditional drawback mechanism under which duty is paid on all import inputs. The duties are subsequently, rebated on inputs used for export production. As general case the final export/producer can apply for the Scheme.
The following rules have to be observed to simplify the processing procedures:
(i) For the same export product defined in an export entry documents, all inputs used to produce a given export article should be treated as part of a single application and therefore cannot be divided into separate duty drawback applications.
If imported inputs, registered in a single import entry document are sub-divided and used for production of more than one export consignment, the import entry document should include information on the production of inputs and the balance remaining to be used.
(ii) Export Expansion Grant (EEG) Scheme:
INCENTIVE RATES:
The scheme will operate the “Weighted Eligibility Criteria” in assessing application for EEG. The baseline data as supplied by individual applicant company would be used in its assessment. Thus the method of assessment is company specific. A company’s EEG assessment would be conducted once yearly and the determined rate will apply throughout the year.
The weighted eligibility criteria have four bands: 30% 20%, 10%, and 5%. The following template will be used in assessing the incentive rate for every EEG applicant.
Determination of Export Performance – Eligibility Criteria
| S/N | Eligibility Criteria | Company Data | Threshold | Weight | Company Score |
| 1 | Local value added | 25% | |||
| 2 | Local content | 20% | |||
| 3 | Employment (Nigerians) | 20% | |||
| 4 | Priority Sector | 10% | |||
| 5 | Export Growth | 20% | |||
| 6 | Capital Investment | 5% |
| Total Weight | 100% |
A new entrant into the EEG scheme shall provide prior period financial statement or where applicable an investment plan for its assessment.
The Scheme provides financial assistance to private sector exporting companies to cover part of their initial expenses in respect of the following export promotion activities:
- a) Participation in training courses, symposia, seminars and workshops in all aspects of export promotion
b) Advertising and publicity campaigns in foreign markets
c) Export market research and studies
d) Production design and consultancy
e) Participation in trade missions, buyer-oriented activities, overseas trade fairs, exhibitions and sales promotion
f) Cost of collecting trade information, and
g) Backing up the development of export oriented industries.
ELIGIBILITY:
A trading Company which collects industrial products from one or more manufacturers as well as a trading Company which imports raw material inputs including packaging and packaging materials used for the production of goods exported by him could also apply for the scheme. Applications must be companies incorporated in Nigeria.
(d) EXPORT DEVELOPMENT FUND SCHEME
The Scheme provides financial assistance to private sector exporting companies to cover part of their initial expenses in respect of the following export promotion activities:
- Participation in training courses, symposia, seminars and workshops in all aspects of export promotion
- Advertising and publicity campaigns in foreign markets
- Export market research and studies
- Production design and consultancy
- Participation in trade missions, buyer-oriented activities, overseas trade fairs, exhibitions and sales promotion
- Cost of collecting trade information, and
- Backing up the development of export oriented industries.
KEY INCENTIVES, BENEFITS AND GUARANTEES
- TRADE LIBERALIZATION SCHEME (TLS) OF THE ECONOMIC COMMUNITY OF WEST AFRICA STATES (ECOWAS)
This is an export liberalization incentive that focuses on the ECOWAS sub-region. The Scheme is an incentive primarily geared towards export activities within the ECOWAS sub-region. The objective is to significantly expand the volume of intra-community trade in the sub-region via the removal of both tariff and non-tariff barriers to trade in goods originating from ECOWAS countries. This affords preferential access to the ECOWAS market from Nigeria.
- LIBERALIZATION OF COMPANY OWNERSHIP STRUCTURE
The Nigerian Investment Promotion Commission Act has liberalized the ownership structure of businesses in Nigeria. The implication of this is that foreigners can own 100% shares in any company without having Nigerian shareholders.
- REPATRIATION OF PROFITS
Under the provisions of the Foreign Exchange (Monitoring & Miscellaneous Provision Act No. 17 of 1995), foreign investors are free to repatriate all their profits and dividends net of taxes through an authorized dealer in freely convertible currency.
- GUARANTEES AGAINST EXPROPRIATION
The Nigerian Investment Promotion Commission Act Cap. N117 Laws of the Federation 2004 guarantees the none nationalization or expropriation of any enterprise or foreign-owned investment by any government in Nigeria.
- INCENTIVES FOR SPECIAL INVESTMENT
For the purpose of promoting identified strategic or major investment, the Nigerian Investment Promotion Commission shall, in consultation with appropriate Government agencies, negotiate specific incentive packages for the promotion of investment as the Commission may specify.
- INVESTMENT PROMOTION AND PROTECTION AGREEMENT (IPPA)
As part of additional effort to foster foreign investors’ confidence in the Nigeria economy, Government continues to enter into bilateral investment promotion and protection agreements (IPPAs) with countries that do business with Nigeria.
The IPPA helps to guarantee the safety of the investment of the contracting parties in the event of war, revolution, expropriation or nationalization. It also guarantees investors the transfer of interests, dividends, profits and other incomes as well as compensation for dispossession or loss.
- INVESTMENT IN ECONOMICALLY DISADVANTAGED AREAS
Without prejudice to the provision of the pioneer status enabling law, a pioneer industry sited in economically disadvantaged Local Government Area is entitled to 100% tax holiday for seven (7) years and an additional 5% capital depreciation allowance over and above the initial capital depreciation allowance.
- LABOUR-INTENSIVE MODE OF PRODUCTION
Industries with high labour/capital ratio are entitled to tax concessions. These are industries with plants, equipment and machinery, which essentially are operated with minimal automation. Where there is automation, such automation should not be more than one process in the course of production.
The rate is graduated in such a way that an industry employing 1,000 persons or more will enjoy 15 percent tax concession, while an industry employing 200 will enjoy 7 percent and those employing 100 will enjoy 6 percent and so on.
- LOCAL VALUE ADDED
10% tax concession for five (5) years. This applies essentially to engineering industries, where some finished imported products serves as inputs. The concession is aimed at encouraging local fabrication rather than the mere assembly of completely knocked down parts.
- RE-INVESTMENT ALLOWANCE
This incentive is granted to companies engaged in manufacturing which incur qualifying capital expenditure for the purposes of approved expansion, etc. the incentive is in the form of a generalized allowance of capital expenditure incurred by companies for the following:
- Expansion of production capacity
• Modernization of production facilities
• Diversification into related products
- MINIMUM LOCAL RAW MATERIALS UTILIZATION
A tax credit of 20% is granted for five years to industries that attain the minimum level of local raw material sourcing and utilization. The minimum levels of local raw materials sourcing and utilization by sectors are: –
Agro-allied – 70%
Engineering – 60%
Chemicals – 60%
Petrochemicals – 70%
- IN-PLANT TRAINING
This is applicable to industrial establishments that have set up in-plant training facilities. Such industries enjoy a two (2) percent tax concession for a period of five (5) years.
- INVESTMENT IN INFRASTRUCTURE
This is a form of incentive granted to industries that provide facilities that ordinarily, should have been provided by government. Such facilities include access roads, pipe borne water and electricity. Twenty percent (20%) of the cost of providing these infrastructural facilities, where they do not exist, is tax deductible.