• Friday, December 08, 2023
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Appraisal of fiscal incentives for investment in power sector in Nigeria (3)


It also provides tax incentives for the development of sectors such as mining, agro-allied and manufacturing. In addition, Section 39 provides tax incentives for companies engaged in gas utilisation (defined to include its use in power plants). The incentives include a three-year tax holiday (with possible renewal for additional two years), accelerated capital allowances after the tax-free period, tax free dividend during the tax-free period and tax deductibility of interest payable on any loan obtained for a gas project with the prior approval of the minister of finance.

The tax incentive provided in Section 39 of CITA is clearly biased towards gas-fired power generating companies. Consequently, it failed to address other participants in the generating and other segments of the power sector value chain. While we concede that this section was incorporated to incentives the gas rather than the power industry, it does create an uneven playing field for operators in the power industry that would opt to invest in other energy sources such as wind, solar, hydro and biogas. Therefore, there is the need to revisit this legislation with a view to providing industry specific tax incentives that embraces the utilisation of all available energy sources for power generation and companies involved in the transmitting and distributing electricity.

(ii) The Industrial Development (Income Tax Relief) Act (IDA), CAP I7, LFN 2004

This was promulgated to promote and incentives industries/products considered extremely pivotal to the development of the country and classified them as pioneer industries/products. The following incentives are available to companies that fall under a pioneer industry or that manufacture pioneer products:

– a tax holiday period of three years commencing on the production day with a possible extension for a maximum of two years

– exemption from tax, dividend payable out of the tax exempt profits of the company in the hands of the shareholders

– the capital expenditure on qualifying assets incurred during the tax relief period is treated as having been incurred on the first day following the tax relief period

– the loss incurred during the tax relief period is also deemed to be incurred on the first day following the expiration of the tax relief period and can be carried forward.

Given the importance of power and the efforts being put in place by the FGN to enhance generation, the minister for commerce and industry (now Trade and Investment) on behalf of the president, issued the Industrial Development (Additional List of Pioneer Industries) Notice No. S. I. 11 of 2008 which included Utility Services industry as a pioneer industry and specifies that “Independent power generation utilising gas, coal and renewable energy sources” is a pioneer ‘product’