MAN supports tax reform on free-trade zone operations in Nigeria

The Manufacturers Association of Nigeria (MAN) has supported the proposed reform of the free-trade zone operations in Nigeria which seeks to introduce minimum tax rates and remove long-standing exemptions for businesses operating within FTZs.

In a communique made available to BusinessDay, Segun Ajayi-Kadir, director general of MAN stated that Section 8 on tax exemption only applies to approved enterprises operating within a Zone.

Kadir said they are exempted from all federal, state, and local government taxes, levies, and rates, and sales to the customs territory are neither an approved activity nor within the zone.

However, he said that section 18 permits the sale of goods and services to the customs territory, but does not confer tax exemption on the sales, but rather a regulatory matter regarding what is permissible.

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“Over time, the provisions of sections 8 and 18 have been misinterpreted as not only permitting the sale into the customs territory but also as tax exemption,” he said.

Kadir added that this position is not consistent with the law and it undermines tax-paying entities operating within the customs territory and producing similar goods and services.

“Where does the tax exemption enjoyed by the companies operating within the zones, leave my more than 2,500 members who operate outside the zone, in terms of level playing field, competitiveness, fairness, and equity?

“They find themselves in a disadvantaged position and are rendered less competitive,” he said.

He believes the tax reform bill before the National Assembly has come to the rescue noting that the bill seeks to bring clarity and equity by stating that sales to the customs territory are taxable, not just for import duties and Value Added Tax (VAT), but also Corporate Income Tax (CIT) purposes.

“That is to say that all sellers in the customs territory should be subject to the same tax obligations.

“Subsequently, I don’t think the relevant provisions of the tax reform bill amount to a reversal of the incentives, not at all,” Kadir said while noting that it is a clarification to align with the intent and letters of the enabling laws.

He further said that the reform is in line with global best practices for free zones.

“In fact, Nigeria will continue to be more generous even after the proposed amendments,” Kadir said citing Ghana as an example.

“Ghana only allows up to 30 percent sales into the customs territory subject to payment of duties and taxes, including CIT. Whereas we allow 100 percent sales. Exports by a zone entity are tax-free only for 10 years after which up to 8 percent CIT will apply.

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“Nigeria offers indefinite tax exemption on exports,” Kadir said.

Furthermore, MAN DG said that the proposed reform would ensure equitable tax treatment for companies operating in the customs territory and those licensed to operate within the free zones concerning sales into the customs territory, thereby enabling fair competition while protecting the country’s tax base.

“Licensed entities will also enjoy similar incentives available to entities within the customs territory for their sale of goods and services into the Customs Territory, a win-win outcome,” he said.