Nigeria Grants Tax Breaks to Tech Firms, Renews Debate on Incentives.

29 Apr 2024

The Nigerian Investment Promotion Commission (NIPC) approved tax breaks for thirteen companies in the fourth quarter of 2023, with nine being information and communication technology (ICT) firms. This news reignited discussions on the effectiveness of tax incentives in stimulating economic growth.

The tax breaks come through the Pioneer Status Incentive (PSI) program, established by the Industrial Development Income Tax Act. The program grants partial or full exemption from income tax for a specific period to companies in designated industries, aiming to encourage investment in critical sectors.

Investments and Approvals

According to the NIPC report, these nine ICT firms have collectively invested N159.61 billion ($377 million) in Nigeria. Some notable examples include:

  • Eastcastle Infrastructure Nigeria Limited: Received a three-year tax exemption with a total investment of N34.86 billion ($82 million).

  • O`odua Infraco Resources Limited: Secured a three-year tax break with a total investment of N96.15 billion ($227 million).

  • Okra Technologies Limited: Approved for a tax exemption from 2023 to 2025 with an investment of N109.54 million ($26 million).

  • Amplitude Telecoms Africa Limited: Granted a tax break from 2023 to 2026 with an investment of N4.8 billion ($11 million).

  • Villextra Technologies Limited: Received approval for a tax exemption from 2023 to 2026 with investments of N930 million ($2.2 million).

These companies join existing beneficiaries like Global Independent Connect Limited, Ulesson Education Limited, and Egole Pay Limited.

Debate on Tax Incentives

While the PSI program aims to attract investment, it has also drawn criticism. Experts argue that only a select few companies benefit, leading to decreased government revenue. Data from the Federal Inland Revenue Service shows that between 2021 and 2022, about 71 companies enjoyed N390.26 billion ($923 million) in tax relief under the PSI scheme.

In response, the government announced plans to review and potentially reduce tax breaks. The Presidential Tax Reform Committee, led by Taiwo Oyedele, estimates that at least 172 companies could lose access to roughly N2.4 trillion ($5.7 billion) in tax waivers under the PSI and other programs.

The International Monetary Fund (IMF) has also weighed in, advising Nigeria and other Sub-Saharan African countries to eliminate tax exemptions to strengthen their fiscal positions.

The Nigerian government faces a challenge in balancing the need to attract investment with the need to generate tax revenue. The PSI program's effectiveness and its impact on long-term economic growth are likely to remain a topic of debate in the coming months.

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