2024 Tax bill could trigger capital flight, undermine free zone revenues, NACCIMA warns

…calls for protection of FTZs amid proposed tax reforms

The Nigeria Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) has raised serious concerns over the proposed Nigeria Tax Bill 2024, warning that the new provisions could trigger capital flight, cripple Free Trade Zone (FTZ) revenues, and undermine decades of progress in attracting foreign direct investment (FDI).

The association in a statement signed by Dele Kelvin Oye President NACCIMA, highlighted that the amendments threaten incentives that have been instrumental in driving economic diversification, job creation, and industrialization in Nigeria.

The body emphasized that removing established tax benefits would not only halt the substantial revenue stream generated from the FTZs estimated at over N650 billion but also weaken investor confidence and push businesses to more investment-friendly markets like Ghana and Angola.

“The provisions of the Nigeria Tax Bill 2024 could trigger capital flight, as companies may relocate to neighbouring markets like Ghana and Angola, which boast friendlier investment climates.

“According to historical data compiled by the Nigeria Export Processing Zones Authority (NEPZA) and the Oil and Gas Export Free Zone Authority (OGFZA), Nigeria has seen over N650 billion generated for the government from these zones through various channels, including customs duties. The removal of established tax benefits will not only halt this revenue stream but will also have severe economic repercussions for the nation,”

Since the FTZ scheme was introduced in 1992 under the Nigeria Export Processing Zones Act, these zones have played a crucial role in Nigeria’s economic development. With over $200 billion in FDI and more than 600,000 jobs created in the last three decades, NACCIMA stressed that the new tax proposals could reverse the country’s gains.

The association noted that the Lagos Free Zone, home to the Lekki Deep Sea Port Nigeria’s busiest and most strategic maritime hub is among the key investment areas that could suffer from the proposed changes. The port recently recorded a milestone by handling the largest container vessel in Nigerian history, a feat that underscores the importance of maintaining a conducive investment environment.

Comparing Nigeria to other global economic players, NACCIMA pointed out that countries such as the UAE, Singapore, China, and India continue to offer significant tax incentives within their FTZs to attract and retain investors. The group warned that if Nigeria revokes its long-standing tax benefits, it risks losing major investment opportunities.

Oye explained that the amendments in the Nigeria Tax Bill 2024 particularly Sections 57, 60, 198(2), and 198(3) seek to introduce minimum tax rates and eliminate key tax exemptions previously granted to FTZ enterprises. NACCIMA argues that these provisions directly contradict the Nigeria Export Processing Zones Authority (NEPZA) Act, which, under Sections 8 and 18, exempts approved enterprises from all federal, state, and local government taxes.

NACCIMA President expressed concerns that the proposed policy shift would have far-reaching consequences.

“It is imperative that we understand the potential ramifications of these proposed changes. Stripping away established tax exemptions is a drastic measure that will diminish investor confidence and jeopardize Nigeria’s standing in the global investment community,” he said.

He further noted that out of Nigeria’s 50 FTZs, 48 were developed by private investors. These businesses, he said made long-term financial commitments based on government guarantees of tax incentives, and a sudden reversal could lead to litigation, arbitration disputes, and financial instability for companies operating within these zones.

NACCIMA also criticized the lack of proper consultation with FTZ stakeholders before the tax proposals were announced. Oye said the first formal communication on the changes came on February 20, 2024, when Taiwo Oyedele, Chairman of the Fiscal Policies and Tax Committee, disclosed the intended amendments during the 3rd Nigerian Economic Zones Association conference.

This late notice, according to NACCIMA, has left many investors in uncertainty, causing a slowdown in FTZ activities and putting potential new investments on hold.

NACCIMA has called on the National Assembly to reconsider the implications of the Nigeria Tax Bill 2024, warning that implementing the proposed amendments without a transitional period would severely disrupt the investment landscape.

The association suggested that if the government insists on changing the FTZ tax structure, it should allow investors a grace period to recoup their investments and adjust their financial models accordingly.

“This policy summersault through legislation is bound to shake everything in Nigeria if not carefully handled,” NACCIMA stated, urging the government to delay the application of the proposed amendments to prevent an economic downturn.