Dec 6, 2015

APPRAISAL OF THE NIPC PIONEER STATUS INCENTIVE REGULATIONS 2014 by Micheal Dugeri


credits-www.google.com


Government in Nigeria has developed a package of incentives for various sectors of the economy as a way of promoting commerce and industry. One of such investment incentives is the Industrial Development (Income Tax Relief) Act, Cap 17, LFN, 2004 (“IDITRA”), which grants tax holidays to companies in industries that meet the conditions of being designated Pioneer industries. Pioneer Status companies are exempted from paying tax on their profits under the Companies Income Tax Act, for a stated period of time. This is usually for a period of three years at the first instance commencing on the production day.

 Section 1 IDITRA provides that the President may declare any industry as a pioneer industry and its products pioneer products, where he is satisfied that:

 any industry is not being carried on in Nigeria on a scale suitable to the economic requirements of Nigeria, or at all, or there are favourable prospects of further development in Nigeria of any industry; or
1.     It is expedient in the public interest to encourage the development or establishment of any industry in Nigeria by declaring the industry to be a Pioneer industry and any product of the industry a pioneer product.
 The Nigerian Investment Promotion Commission (NIPC) sometime last year released the Pioneer Status Incentive Regulations, with an effective date of 30 January 2014. The Pioneer Status Incentive Regulations 2014 (“the Regulations”) have other requirements apart from those in IDITRA for processing an application for Pioneer Status. The Regulations were made pursuant to section 30 of the NIPC Act CAP. N117 LFN 2004. They set out the objectives and scope, as well as processes/procedures guiding the application and issuance of the pioneer status incentive. We shall examine key provisions in the Regulations and point out the various legal issues they raise and the attendant implications.

 Application for a Pioneer Status Incentive
Clause 3 (1) (2) of the Regulations provides that an applicant for a Pioneer Status Incentive must:
1.     be a body corporate, registered in Nigeria; and
2.     have incurred capital expenditure of not less than N10 million.
 A filled application form (obtainable for free) is to be submitted along with a list of requirements to the NIPC. The list of requirements includes the following items:
1.     the relevant regulatory license to operate in the sector or business activity where applicable;
2.     tax clearance certificate;
  • a copy of the NIPC registration certificate;
1.     evidence of payment of a non-refundable processing fee of N200, 000.
 Some of the above requirements are a radical departure from the provisions of IDITRA. The qualifying requirements under IDITRA are that the applicant company must have been registered in Nigeria and incurred a capital expenditure of not less than N50, 000 (in the case of an indigenous-controlled company) or N150, 000, in the case of any other company. More so, section 2 (4) IDITRA states that the applicant is required to pay an application processing fee of N100 only. There is nothing in IDITRA that empowers any authority to review the fees therein by regulations or rules made pursuant to the Act.
What is more worrisome is the new blanket requirement of NIPC Registration Certificate as one of the documents to be submitted along with an application for pioneer status. Registration with NIPC is provided under section 20 of the NIPC Act and it is for companies with foreign participation. The provision does not apply to wholly indigenous-controlled companies; whereas, the IDITRA applies to all companies doing business in Nigeria. It would be absurd and cumbersome therefore, to subject all companies seeking pioneer status to first register with NIPC. It would also add to the cost of applying for pioneer status.        

Introduction of Service Charge
Part III of the Regulations introduced a service charge to be paid by every company applying for the pioneer status incentive. This is completely absent in IDITRA. The service charge is to be determined by the NIPC at 2% of a company’s estimated tax savings, derived from five-year financial projections. Where a company records losses in its projections, the service charge is to be calculated on the higher of the following: 0.5% of its net assets; or 0.25% of its turnover.

Clause 7 of the Regulations states that a notification letter accompanied by an invoice would be issued by the NIPC within two days of the determination of the service charge to the company. Upon presentation of evidence of payment of the invoice amount, an approval letter would then be issued to the applicant company, which is one of the documents to be presented to the NIPC before a Pioneer Status Certificate is issued.

The introduction of the service charge raises three issues: first, the fact that the levy is not contained in IDITRA nor contemplated by it makes its imposition arbitrary. Secondly, it adds to the cost of applying for pioneer status. Thirdly, the levy regardless of profitability means that pioneer incentive may well result in additional cost overall putting the affected companies in a worse situation than without the incentive.

Other Provisions
The Regulations additionally provide for a periodic impact assessment to be carried out by the NIPC, for the purpose of evaluating the utilisation of the savings obtained from the Pioneer Status Incentive; and extenuating circumstances (including but not limited to host community hostility, natural disasters, strikes, and insurgency) where the pioneer incentive may be suspended and the procedures to be followed to achieve this. There is also provision for circumstances in which the pioneer status certificate may be revoked. These provisions are essentially in tandem with IDITRA.

Legal basis of the Regulations
The Regulations are made pursuant to section 30 of the NIPC Act. Interestingly, section 30 of the NIPC Act gives the NIPC powers to make regulations for the administration of the NIPC Act and not for the administration of Pioneer Status Tax Incentive Regime, which is established under the IDITRA. The legal basis for the Regulations may thus be challenged. In fact, the NIPC is not statutorily empowered to administer pioneer status incentives. The core legal mandate of the NIPC is the registration and monitoring of foreign investments in Nigeria. The agency responsible for administering pioneer status is the Federal Ministry for Industry. This is pursuant to sections 2 and 25 IDITRA.

The argument that NIPC is a Parastatal under the Federal Ministry for Industry and the Minister responsible  may thus delegate his powers under IDITRA to it is simplistic. The NIPC is a statutory body established by a law, which also defines its powers and functions. There is need for a clear legal instrument enabling the NIPC to perform functions not contained in its establishment law, and such legal instrument should ordinarily form the basis for the Pioneer Status Incentive Regulations and not the NIPC Act. This may require amendment to either the NIPC Act or IDITRA.

Conclusion
The arguments in this paper against the legality of the Pioneer Status Incentive Regulations 2014 are twofold: firstly; the Regulations have a wrong legal basis. They are made pursuant to section 30 of the NIPC Act, whereas the principal legislation on Pioneer Status Incentive is IDITRA. Although in practice, the NIPC is the government agency that issues pioneer status and other investment incentives to any deserving company it is legally wrong to base the Pioneers Status Incentive Regulations on the NIPC Act rather than on the legal instrument under which the Minister for Industry may have delegated his powers under IDITRA to the NIPC.

Secondly, certain clauses in the Regulations materially contradict the IDITRA. It is argued that to the extent that some clauses in the Regulations conflict with the principal legislation on pioneer status incentive such clauses in the Regulations may be struck down by the court in deserving situations. The law is trite that a subsidiary legislation derives its authority from the principal enactment and a conflict between the two must be resolved in favour of the latter. In the case of Nwanezie v. Idris (1993) 3 NWLR (Pt. 279) 1 at 16, the Supreme Court struck down a rule of court which conflicted with a statutory provision on the same issue. The apex court opined that a statutory provision is superior in status to a regulatory rule made under statute. There is little to believe that the fate of the Pioneer Status Incentive Regulations may be different if it is ever challenged in court.  

Finally, much as one might argue against the legality of the NIPC Regulations, it needs to be stated that IDITRA is an old legislation, and some of its provisions are now obsolete. The Act needs to be amended and its provisions streamlined to reflect present day realities in the world of commerce and industry. 
Share:

0 comments:

Post a Comment

The Nigerian blawg

We are a law blog dedicated to educating Nigerians on their legal rights, duties and obligations under the law.

Join us in our bid to promote the Rule of Law in Nigeria by sharing our articles with your network. Legal practitioners can also contribute articles by sending a mail to legalnaija@gmail.com

Disclaimer:- Posts and comments by the publishers of this blog do not constitute legal advice or create an attorney-client relationship.

Blog Archive

CONSULTANTS

Luxury Street

CONTACT US

Name

Email *

Message *

Powered by Blogger.