FG Plan To Tax Free Trade Zones Puts Foreign Investments At Risk

…ExecuJet Free Zone Enterprises, NAHCO FTZ May Cut Workers

LAGOS – As the Federal Government plans imposition of tax on the Free Trade Zones (FTZs) in the country, players in the zone in the Nigerian aviation industry fear that this action may affect foreign investments in the coun­try.

They also expressed appre­hension that the decision may lead to huge job losses in the sector, while technology trans­fer may be eliminated.

There are two companies in the Nigerian aviation industry operating in the Free Trade Zone (FTZ) area.

The companies are ExecuJet Aviation Nigeria and the Nigeri­an Aviation Handling Compa­ny (NAHCo) Free Zone (NFZ). The two are located within the Murtala Muhammed Airport (MMA), Lagos.

ExecuJet Aviation Nigeria’s FTZ allows the company to pass savings on to customers by exempting parts and services from the Value Added Tax (VAT) and customs charges, while for NAHCO, the FTZ was created to provide cost-effective storage, lo­gistics and operational services that accelerate speed to business and sustain competitive advan­tage for companies that need to expand their trade activities in Nigeria.

The Free Trade Zones are created to encourage economic activity and provide employ­ment by reducing trade barriers and regulations.

Mr. Sam Iwuajoku, Chair­man, Quits Aviation Services Limited, operators of ExecuJet facility in Nigeria, feared that the decision of the Federal Gov­ernment to impose tax on FTZs may on the long run spell doom for the nation’s economy.

Iwuajoku explained that the creation of the free trade zone in the sector had attracted inves­tors to the country, but expressed worry that policy summersault by the government was killing businesses and investments not only in the sector, but in the country at large.

“Government policy sum­mersaults are driving away companies in Nigeria. For in­stance, look at Lever Brothers, they moved to Ghana because we are doing backward inte­gration. What about the textile industry? Where are the compa­nies today?” Iwuajoku queried.

Iwuajoku also decried that the imposition of such tax would affect transfer of technol­ogy, investment opportunities and employment of qualified Nigerians, adding that some maintenance carried out on air­craft may be impossible again.

The Chairman of ExcuJet warned that with the imple­mentation of the new regime, the company may be compelled to downsize at least 80 percent of its current workforce.

Currently, ExecuJet Aviation Nigeria employs about 160 work­ers, mainly professionals.

He also said that the govern­ment would be working at cross purposes with the other global economies with the imposition of tax in FTZs, calling on the government to reverse its deci­sion.

He said: “Once the gov­ernment comes up with this planned new tax, because we too don’t charge tax when we work on your equipment, there is no point for airline operators to come to Nigeria for the main­tenance of their equipment again. Why will I bring my aircraft here when I can get the same rates in London, Dubai or somewhere else without that tax?

“Government should be careful, aviation business is very sensitive and the margin is very thin. I keep on warning them or else, the airlines will start cutting corners and there will be accidents. The government should leave the sector alone.

“Since Nigeria joined the free trade zone, people have started bringing their equipment that we never had. Leading aircraft manufacturers are now domi­ciled here, having their autho­rised service centre here. We have done this and they are im­pressed and thanked the govern­ment for what they have done.”

He pointed out that compa­nies operating within the FTZs source their foreign exchange in the open market unlike oth­er companies that get foreign exchange through the Central Bank of Nigeria (CBN).

Also, Mr. Chris Amokwu, aviation analyst, wondered what the government intended to achieve with the change in policy.

Amokwu explained that investors were encouraged to invest in the FTZs because it’s a tax-free regime, noting that imposition of tax in the zones would lead to the closing of busi­nesses in the area.

Like Iwuajoku, Amokwu lamented that the imposition of tax from the FTZs would dis­courage investors, while other impending investors would avoid the country.

“The government wants to kill the joy with this planned imposition of tax on free trade zones,” he added.

Also, Mr. Toyin Elegbede, the Executive Secretary of Free Trade Zone Stakeholders, in an interview with our correspon­dent, expressed reservations on certain provisions of the Nige­ria Tax Bill, 2024, particularly the proposal to expunge some sections of Acts establishing both the Nigeria Export Process­ing Zones Authority (NEPZA) and Oil & Gas Free Zones Au­thority (OGFZA), which provid­ed tax incentives for the Special Economic Zones Scheme.

Elegbede emphasised that the Federal Government should only pass a tax law that promot­ed a sustained inflow of both lo­cal and foreign investment into the SEZs ecosystem.

Just on Monday, the Nigeri­an Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) warned that the imposition of tax on the FTZs could drive away over $200 billion in Foreign Direct Investments (FDI) from the country, and jeopardise more than 600,000 jobs.

NACCIMA, in a strongly worded statement by Dele Oye, its National President, expressed grave concern over the proposed amendments, particularly Sections 57, 60, 198(2), and 198(3), which threat­en to dismantle key incentives that have sustained FTZ invest­ments since the scheme was in­troduced through the Nigeria Export Processing Zones Act in 1992.

“Stripping away established tax exemptions is a drastic mea­sure that will diminish investor confidence and jeopardise Nige­ria’s standing in the global in­vestment community,” said Oye.

According to NACCIMA, out of Nigeria’s 50 FTZs, 48 were de­veloped through private-sector investments.

The tax exemptions within these zones have been crucial in attracting investors, creating jobs, and generating over N650 billion in government revenue through customs duties and re­lated economic activities, NAC­CIMA said.