..Say It Will Lead to Loss Of Investments, Capital Flight
The Nigerian Free Zone operators have raised concerns regarding the potential negative impact of the Nigeria Tax Bill, 2024, on the country’s free trade zones.
The Ninety-eight operators and other stakeholders convene an emergency stakeholders’ meeting to take a position on the Nigeria Tax Bill, 2024 as it affects free zone entities in Nigeria.
The operators in a communique sent to THE WHISTLER on Sunday highlighted how the proposed changes in the bill, such as altering tax exemptions and incentives for free zone operators, could undermine foreign investments, job creation, and economic growth facilitated by the free zone scheme.
The Stakeholder recalled that Special Economic Zones (Free Trade Zones) have achieved key objectives, including attracting over N300bn in investments, generating N650bn in government revenue, and creating over 100,000 direct and 500,000 indirect jobs as of January 2024.
This achievement, the stakeholders fear, would be distorted despite the intention of the federal government to consolidate and modernize the tax framework in Nigeria via the Bill is salutary.
The report noted that “Some of the sections are a significant departure from the existing tax framework for the operation of Nigeria’s free zones and will have a grave impact on the survival of the free zone scheme.
“This is particularly evident in Sections 57, 60,198(2), and 198 (3) of the Bill and the Second Schedule to the Bill.”
The operators highlighted that if these provisions are passed into law, they will rescind decades-long tax exemptions and incentives that have historically been central to the operations of free zone enterprises and which, indeed, constitute the “offer” that was made by the FGN to international investors, accepted over the decades and have based their long-term investment decisions and models on.
“By removing exemptions from taxes contained in the existing law, as well as protections against levies, duties and foreign exchange restrictions, the amendments will destroy the attractiveness of free zones, result in massive capital flight and job losses, and stall the realization of Nigeria’s industrialization and export expansion ambitions and the other above-mentioned objectives of free zone scheme in Nigeria,” the operators warned.
The communique noted that the provisions of the Bill, which intend to repeal Sections 8 and 18(1)a of NEPZA and OGFZA Acts and significantly reduce the tax exemptions and incentives available to Free Zone Enterprises, would amount to using a sledgehammer to kill an ant while trying to streamline the free zone provisions.
The operators stressed that these provisions were inserted based on a “false assertion that the law allows for only the sale of 25 per cent of goods into the Nigeria Customs Territory while ignoring the approval granted in 2002 by the FGN that up to 100 per cent of the product from free zones may be sold into the Nigeria Custom Territory upon payment of appropriate Custom duties.”
It noted that regulatory certainty is one of the key concerns for any investor in determining the appropriate destination for their investments.
“The sudden and abrupt withdrawal of the incentives and concession, despite the volume of FDI brought into the country based on the fiscal incentives promised by the FGN is very harsh and has the potential to create a negative impression of Nigeria as an investment destination.
“The sudden withdrawal of the incentives would lead to significant international legal actions with consequent backlash of sharp reduction in foreign investment, drop in the global ranking for ease of doing business and diversion of investment meant for Nigeria to neighboring countries with friendlier incentives.
“Nigeria is in the process of economic reform, but also noted that pulling the rug off the feet of free zone entities through this bill will amount to self-sabotage on the part of FGN and it will stand out as a classic example of policy somersaults in Nigeria, significantly damage the country’s image within the global investment community, erode investors” the report disclosed.
The stakeholders therefore agreed and recommended that, given the potential negative impact of the Nigeria Tax Bill, 2024 on the Free Zone Scheme, the FGN should consider the position of Free Zone Stakeholders and expunge Sections 60, 198(2) and 198(3) of the Bill/
They called for “exclusion of free zone enterprises from the scope of application of Section 57 of the Bill; and delete the current Second Schedule of the Bill in its entirety.”