Nigeria targets priority sectors with tax incentives to spur growth

Nigeria is seeking to jumpstart its economy by offering targeted tax incentives under new reform bills, aiming to spur investment and unlock growth across priority sectors.

The priority sector incentive outlined in the Eleventh Schedule, dubbed ‘Economic Development Incentives’, aims to revitalise key sectors such as manufacturing, renewable energy, healthcare, and transportation for sustainable growth.

“The major focus of the priority sector incentive is manufacturing. We feel like at this point in our national development we have to prioritise manufacturing because it comes with a lot of challenges,” said Taiwo Oyedele, chairman, Presidential Fiscal Policy and Tax Reforms Committee at the BusinessDay Policy Intervention series in Lagos on Tuesday.

Africa’s most populous nation is seeking to harmonise its tax laws in a push to stimulate needed annual growth, lower fiscal deficit, improve its tax as a percentage of gross domestic product ratio and make the economy more competitive.

The country’s tax-to-GDP ratio is one of the lowest globally at 10 percent in 2023, but unofficial data suggests that it has increased to 13.6 percent with the authorities targeting 18 percent in the next two years.

Efforts by the government are also expected to lower debt servicing as a percentage of revenue from 97 percent in 2022 to 50 percent on renewed fiscal management.

Read also: Nigeria to introduce new tax credit scheme to replace pioneer status incentive

Oyedele who spoke to the theme ‘Beyond the controversy: harnessing tax incentives for growth in Nigeria’s priority sectors’ said the tax reform bills made provision for this scheme to replace the Pioneer Status Incentives which was plagued with “a lot of loopholes”, making it impossible for the government to get benefits from the tax credit it “gives away”.

Corroborating this, Olamide Obajimi, partner, Olaniwun Ajayi, said the pioneer status incentive “may be too much of a tax expenditure given by the government to businesses, and which governments may not be able to track.”

He however called on the government to leverage technology in the implementation process of the newly introduced scheme, stressing that “I do not think that investors will jump at a situation where the priority sector initiative is not properly implemented.”

Oyedele explained that the priority sector incentive exempts businesses from paying taxes for the period of five years on meeting certain conditions.

“This priority sector incentive says when you meet the conditions we’re going to focus on the investments.Based on the amount of investments you have made that we can validate. So the industrial inspectorate division will validate the value of the investments. You get 5% of the value of the assets as tax credits,” Oyedele said.

“For every asset that you buy you get 5% tax credits for five years. That’s effectively you’re getting 25% as tax credits,” he explained.

For Oyedele, the new incentive scheme is better for investors and for the government, describing it as “people-centered, growth-focused, and efficiency-driven”.

According to Samuel Agbeluyi, president of the Chartered Institute of Taxation (CITN), the authorities need to do more in terms of public awareness.

Agbeluyi emphasised the need for political officials to also join in the advocacy by ensuring tax compliance as a way of inspiring the citizens not to evade taxes.

“I would be very happy to see the President of this country showing his tax cards that I am a tax-compliant citizen of this country. This will make a lot of impact in the minds of the people. Once they can see that their leaders are also doing what they are being asked to do, then by doing so, you are breaking the trust deficits,” he said.