NEITI advocates tax exemptions for startups, renewable energy, others

The Nigeria Extractive Industries Transparency Initiative (NEITI) has endorsed the 2024 Tax Reform Bill currently being debated in the National Assembly, but called on the lawmakers to consider providing tax exemptions for small businesses, startups, renewable energy initiatives, and other sustainability projects.

This, according to NEITI, is to promote reinvestment and growth, along with the establishment of clear thresholds for significant economic presence to streamline the enforcement and compliance of taxation for non-resident entities.

In a statement released on Tuesday, NEITI said that its recommendations were outlined in a memo signed by its Executive Secretary, Dr. Orji Orji, which was sent to the leadership of the National Assembly and the Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms.

While acknowledging the potential benefits of the Bill, NEITI highlighted that its detailed review of the draft legislation identified both strengths and weaknesses, particularly concerning the extractive industries,central to its mandate. Consequently, NEITI has proposed several recommendations to address the gaps in the implementation of the proposed law. According to the initiative, Sections 1 and 2 are designed to ensure a unified tax legislation across Nigeria for all individuals and legal entities, but lack clear guidelines to harmonize federal and state tax laws and clarify roles of subnational governments.

NEITI praised the Bill’s intention to unify tax administration in the country by repealing existing Acts and consolidating them into a single framework. However, it emphasised that careful management of the transition process and strong public awareness campaigns are essential to prevent any administrative confusion.

On implications of the tax law for the Oil, Gas and Mining Industries, including income, petroleum operations, VAT, and tax incentives, NEITI recommended the introduction of clauses to address issues of alignment with state tax systems and provide guidance for resolving jurisdictional conflicts.

NEITI noted that the provision on taxation of digital assets aligned with global practices. The Agency called for clear definitions of the taxable assets, events and valuation guidelines to be established to ensure effective reporting mechanisms and implementation, allowing for exemptions or phased implementation for small businesses, to support growth.

On Resident and Non-Resident Taxation, NEITI commended the provision for significant economic presence, but said it required clear criteria to avoid disputes and challenges in enforcement. While the provision requiring minimum effective tax rates for foreign subsidiaries was desirable to curb profit shifting, NEITI said collaboration with international tax authorities was essential for its success.

The transparency and accountability agency stated further that it supported the provisions on taxation of undistributed profits, but advised that consideration must be given to small and medium enterprises (SMEs), to avoid disproportionate impacts on their businesses.

On Benefits in Kind (BIK) and Employee Taxation, NEITI called for explicit guidelines to be established for valuing benefits like accommodation and other perks, to ensure smooth implementation and minimize disputes.

Furthermore, NEITI noted the exclusion of partnerships and joint ventures in petroleum operations which presents a huge gap that should be addressed to ensure fairness and accountability in the extractive sector.

On taxation of petroleum operations, NEITI called for the reduction of hydrocarbon tax rates for smaller operators to promote industry participation, expansion of incentives for carbon capture and the introduction of incentives for renewable energy development projects and energy transition investments to align with energy transition goals.

Describing the provisions on Stamp Duties and Value Added Tax (VAT) as comprehensive, NEITI observed that its enforcement in the informal sector and compliance burdens on SMEs remain concerns to be mitigated, while the success of efforts to provide relief on double taxations would depend on robust international agreements and institutional capacity to effectively implement the scheme.

Also, NEITI called for the reassessment of tax rates for small-scale service providers, including the simplification of processes for compliance with Excise Duty on Services to ease their burden. NEITI recommended the implementation of robust digital tax administration tools to track, monitor and prevent VAT evasion, compliance and fraud. The Transparency Agency also called for simplified application procedures to be established and incentives expanded to include climate change mitigation and renewable energy projects and provision of targeted incentives for renewable energy projects to align with energy transition goals.

Other recommendations include the need to streamline application procedures and the provision of technical support for applicants for Economic Development Tax Incentives; definition of eligible sectors exemptions from Stamp Duties and VAT transactions for greater transparency as well as lower stamp duty rates for priority sectors to encourage investment.

In terms of the general provisions, NEITI recommended investment in capacity-building for tax administrators and adoption of data-driven monitoring systems.

On Relief for Double Taxation and Taxation of Dutiable Instruments, NEITI recommended the inclusion of provisions for the establishment of clear dispute resolution mechanism, possibly through tax tribunals for arbitration or negotiations. It equally called for the introduction of reduced rates or exemptions for priority sectors to encourage investment.

NEITI therefore called for robust engagements with critical stakeholders especially the civil society. The Agency offered to lead the engagements with the third sector on the reform Bill, given its experience in relationship management, goodwill and confidence building it has developed over time with the civil society. 

“The Bill has the potential to modernize Nigeria’s tax system, streamline and broaden its administration and tax base to align with global best practices,” Orji said.