Following the 16 May 2017 “https://www.vi-m.com/wp-content/uploads/2017/05/Abuse-of-pioneer-status-public-notice-by-the-national-assembly.pdf” public notice by the House of Representatives’ Ad-hoc Committee on the Abuse of Pioneer Status by Companies (“the Committee”), inviting certain government agencies and companies to an investigative hearing commencing on <strong>Friday, 2 June 2017 and submission of memoranda), there have been speculations among stakeholders as to government’s real intentions and eventual outcome of the hearing.
Topmost on the list of concerns is the possibility of discouraging or disincentivizing genuine foreign and domestic investments into the key sectors covered by the pioneer incentive. Secondly, existing investors that were fully qualified for the incentive and who followed due process to obtain it are concerned about the idea behind the alleged ‘abuse’ of pioneer status.
Another concern is that this exercise would definitely constitute an additional regulatory burden, unnecessary expenditure in preparation of the requisite memoranda and possibly hiring of professional advisers, time investment in attending the hearings as long as required, panic and distraction, for companies which should ordinarily focus on running their legitimate businesses.
To address some of these concerns, we have spoken to our contacts at the National Investment Promotion Commission (NIPC), the government agency in charge of grant of pioneer status, to find out what is prompting the investigative hearing and how it might affect investors in the pioneer industries. We were assured that there is no motive whatsoever from government to disincentivize or discourage eligible companies from duly applying for pioneer status and obtaining their pioneer certificates.
In fact, we were assured that there is no cause for alarm as the National Assembly is only trying to perform one of the duties which the 1999 Constitution of the Federal Republic of Nigeria has empowered them to perform. An extract from Section 88 of the Constitution specifically states that:
Subject to the provisions of this constitution, each House of the National Assembly shall have power by resolution published in its journal or in the Official Gazette of the Government of the Federation, to direct or cause to be directed, investigation into:
Any matter or thing with respect to which it has power to make laws, and
Conduct of affairs of any person, authority, ministry or government department charged, or intended to be charged, with the duty of or responsibility for-
Executing or administering laws enacted by National Assembly, and
Disbursing or administering moneys appropriated or to be appropriated by the National assembly.
We advise therefore that invited companies who followed due process in obtaining their pioneer statuses should not panic, rather treat the exercise as a formality to which they should comply. These companies may also consider engaging professional advisers to take the administrative burden of preparing the memoranda and attending the hearings off them.
Secondly, eligible new/ intending investors into the pioneer industries are also encouraged to continue to send in their applications to NIPC for grant of pioneer status as there is no reason for worry or hesitation.
As a refresher, Pioneer status is a fiscal incentive provided under the Industrial Development (Income Tax Relief) Act, Cap I7, Laws of the Federation of Nigeria, 2004 (IDITRA). Eligible companies operating in designated pioneer industries and or producing pioneer products, which apply for and are granted pioneer status, are entitled to income tax holiday for up to five (5) years – three (3) years in the first instance, renewable for an additional maximum period of two (2) years. In addition to income tax holiday, pioneer companies enjoy other benefits such as; Capital allowances on fixed asset costs after tax holiday, carry forward of tax losses after pioneer period and tax free dividends from the pioneer profits.
Finally, as further reassurance to all eligible companies among the invitees to the Investigative Hearing that followed due process in obtaining their pioneer statuses, only the President can revoke pioneer status granted to a company, if there are grounds to do so as prescribed by the IDITRA.