3 hours ago
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By Merit Ibe
The Manufacturers Association of Nigeria (MAN) has thrown its weight behind the federal government’s proposed reform of the free-trade zone operations in Nigeria, saying the move will help bolster fair competition and safeguard the country’s tax revenue.
According to MAN, a well-structured FTZ framework will not only ensure a level playing field for businesses but also protect Nigeria’s economic interests by curbing revenue leakages.
Supporting the tax reform bill before the National Assembly, the association viewed that it will ensure equitable tax treatment for companies operating in the customs territory and those licensed to operate within the free zones with respect to sales into the customs territory.
Director General of MAN, Segun Ajayi-Kadir, stated that licensed entities will also enjoy similar incentives available to entities within the customs territory with respect to their sale of goods and services into the Customs Territory, which is a win-win outcome.
Ajayi-Kadir said it is important to situate MAN’s position within the context of what export processing zones and export free trade zones were created to achieve and the value they are purposed to deliver to the economy.
He explained that it is clear from the enabling laws and in the 3rd Schedule to the Nigeria Export Processing Zone Authority (NEPZA) Act with the first listed approved activity stated as “manufacturing of goods for export”, while other activities relate to international services, transshipment and services within the zones.
While pointing out that the emphasis here is “within the zones,” Ajayi- Kadir argued that for instance, banking is listed as an approved activity but it does not mean that a bank can set up in the zone and render banking services across Nigeria without paying taxes; rather, it refers to banking within the zone and exports.
“So, this should explain how other activities (apart from manufacturing for export) should be viewed,” he said, noting that the concern of MAN members and the contention here obviously pertain to tax incentives.
“In specific terms, Section 8 on exemption from taxes only applies to approved enterprises operating within a Zone. They are exempted from all Federal, State and Local Government taxes, levies and rates. Sales to the customs territory is neither an approved activity nor is it within the zone,” he stated.
The MAN DG, however, said section 18 permits the sale of goods and services to the customs territory, but this does not confer tax exemption on the sales, but rather a regulatory matter regarding what is permissible.
“Over time, the provisions of sections 8 and 18 have been misinterpreted as not only permitting the sale into the customs territory but also as tax exemption. So again, I say this is where the concern of my members and the contention lies: This position is not consistent with the law and it undermines tax-paying entities operating within the Customs territory and producing similar goods and services.”
Ajayi- Kadir queried :“Where does the tax exemption enjoyed by the companies operating within the zones leave my more than 2,500 members who operate outside the zone, in terms of level playing field, competitiveness, fairness and equity? They find themselves in a disadvantaged position and are rendered less competitive.”
He, however, expressed the belief that the tax reform bill before the National Assembly has actually come to the rescue.
“The bill seeks to bring clarity and equity by stating that sales to the customs territory are taxable, not just for import duties and VAT, but also Company Income Tax (CIT) purposes. That is to say that all sellers in the customs territory should be subject to the same tax obligations,” he said.
The MAN DG stated that subsequently, he does not think that the relevant provisions of the tax reform bill amount to a reversal of the incentives. “It is actually a clarification to align with the intent and letters of the enabling laws. This is in line with global best practice for free zones,” he said.
He said in fact, Nigeria will continue to be more generous even after the proposed amendments, noting the situation in nearby Ghana, for instance, which only allows up to 30 per cent sales into the customs territory subject to payment of duties and taxes, including CIT, whereas Nigeria allows 100 per cent sales.
“Exports by a zone entity are tax-free only for 10 years after which up to eight per cent CIT will apply. Nigeria offers indefinite tax exemption on exports,” Ajayi- Kadir stated.
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