The Federal Government should listen to the Organised Private Sector (OPS) and halt the proposed tax on Free Trade Zones (FTZs). According to the organisation, Nigeria risks losing $200 billion investment and over 600,000 jobs if the decision is not reversed. FTZs are designated areas within the country, where goods can be imported, stored, manufactured, and exported without paying customs duties. Also called ‘Special Economic Zones’, free trade zones are created to remove barriers to trade, attract foreign investments, provide warehouses and distribute essential facilities.
The OPS concern was contained in a statement by the National Chairman of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA), Dele Oye. It followed the announcement made recently by Taiwo Oyedele, chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, that government would introduce minimum tax and remove long-standing tax exemptions for businesses operating within FTZs. According to NACCIMA, the proposed taxes contradict Nigeria’s industrialisation and investment objectives.
Particularly worrisome, according to the statement by the OPS, Sections 57, 60, 198(2), and 198(3), of the Tax Bills, which appear to threaten to dismantle some incentives that sustain free trade zones investment since the establishment of the Nigeria Export Processing zones Act 1992. Oyedele had disclosed at the 3rd Nigerian Economic Zones Association conference, in Lagos, that the federal government “is considering a top-up tax system” to ensure that the country retains its fair share of corporate taxation.
He also revealed that that the Export Processing Zone Act needs urgent policy review, adding that the Act no longer aligns with modern economic realities. Free zone businesses exporting up to 25 per cent of their goods to Nigeria’s Customs territory would be taxed, while those exceeding this threshold will pay tax on all their sales. The OPS is right. Taxing the FTZs will strip them of tax exemptions. If the proposed taxes on FTZs take effect, it will drastically diminish investors’ confidence and jeopardise Nigeria’s standing in global investment community.
Besides, businesses operating in the FTZs enabled by special tax incentives, have significantly contributed to Nigeria’s economic development, attracting investment, promoting job creation, and fostering industrialization. Sections 8 & 18 of NEPZ Act exempted approved enterprises from all federal, states’ taxes. This creates an attractive investment environment. This is why the federal government should rethink its plan on taxes on FTZs.
More consultations with OPS and other stakeholders are necessary to avoid more controversies on the Tax Reform Bill 2024 that have already generated heated debates across the country. NACCIMA has alleged that companies in the FTZs were not consulted by government on the proposed new taxes. Failure to reverse the proposed taxes on FTZs will likely witness many businesses relocating to neighbouring West African countries because of incentives.
According to figures, Nigeria is expected to earn over N650billion annually from oil and gas exports free zones authority. But this may not be realised with the removal of established tax benefits that companies in the free trade zones enjoy. This has severe economic consequences for the country. The government and the National Assembly should initiate policies that will encourage long-term investments that hinder them. In that regard, there is need to reassess the proposed Tax bill reforms before the National Assembly, especially as it affects the FTZs.
Frequent policy reversals affect long-term business planning. Many business operators have often complained about cumbersome trade facilitation processes that hamper smooth flow of goods and services. This ultimately increases the cost of doing business in Nigeria. Going forward, we advise government to focus on opportunities and challenges around trade and investment in the country. The survival of Nigerian businesses and their partners should receive priority attention. We say this because enterprises are catalysts for sustainable economic growth.