FTZs tax fair, won’t reverse incentives – MAN

The Manufacturers Association of Nigeria has backed the Federal Government’s proposed tax reforms for Free Trade Zone businesses, saying the policy will ensure fair competition and will not reverse incentives necessary for business growth.

The Director-General of MAN, Segun Ajayi-Kadir, said in a statement on Tuesday that the reform aligns with global best practices and will level the playing field for companies operating within and outside the FTZs.

“The tax reform bill before the National Assembly has actually come to the rescue,” Ajayi-Kadir stated. “It 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 for Company Income Tax purposes.”

The Federal Government’s proposal through the Presidential Committee on Fiscal Policy and Tax Reform aims to ensure that businesses selling in the customs territory from FTZs are subject to the same tax obligations as companies outside the zones.

On February 20, 2025, Chairman of the Presidential Committee on Fiscal Policy and Tax Reform, Taiwo Oyedele, revealed in a panel at the 3rd Nigerian Economic Zones Association conference held in Lagos, that the Federal Government is considering a “top-up tax” mechanism which will affect the existing FTZs taxation system to ensure the country retains its fair share of corporate taxation.

Ajayi-Kadir, himself a member of the tax reform committee, defended the proposed reform affecting FTZs taxation calling it a win-win.

He declared the reforms would “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, thereby enabling fair competition while protecting the country’s tax base.

“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, a win-win outcome.”

Ajayi-Kadir decried that the current exemption creates an unfair advantage, putting over 2,500 manufacturers at a disadvantage.

“Where does the tax exemption enjoyed by 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?” he asked.

MAN’s DG clarified that the proposed reform is not a reversal of incentives but rather a necessary correction to prevent tax evasion and ensure fair competition.

“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.

“However, 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,” he stated.

Maintaining that the original Nigeria Export Processing Zones Authority Act provision for tax emotions has been long misinterpreted, Ajayi-Kadir remarked, “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.”

Further, MAN’s DG cited Ghana’s model, where businesses in FTZs can only sell up to 30 per cent of their products into the customs territory and must pay duties and taxes, including corporate income tax.

He argued that Nigeria’s allowing for up to 100 per cent sale within customs territory was more accommodating.

He concluded, “Ghana only allows up to 30 per cent of sales into the customs territory subject to payment of duties and taxes, including CIT. Whereas we (in Nigeria) allow 100 per cent sales. Exports by a zone entity are tax-free only for 10 years after which up to 8 per cent CIT will apply. Nigeria offers indefinite tax exemption on exports.”

Meanwhile, MAN’s stance contrasts sharply with warnings from the Chairman of the Organised Private Sector of Nigeria and the President of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, Dele Oye, who in a recent statement argued that the proposed tax policies could lead to the loss of $200bn in investment and 600,000 jobs.

Oye described the proposal as a contradiction of Nigeria’s industrialisation goals, warning that it could force businesses to relocate to more favourable markets like Ghana and Angola.

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

He also criticised the government for not adequately consulting stakeholders before announcing the reforms. “The FTZs association and companies were not formally consulted before February 20, 2025, when the chairman of the Fiscal Policies and Tax Committee, Mr Taiwo Oyedele, informed the FTZ community of the intended substantial amendment,” Oye stated.

The OPSN chairman argued that FTZs have contributed significantly to economic growth, attracting investments, creating jobs, and generating over N650bn in government revenue through customs duties and related activities.

“The provisions of the Nigeria Tax Bill 2024 could trigger capital flight, as companies may relocate to neighbouring markets like Ghana and Angola, which boast friendlier investment climates,” he warned.

Oye called on the National Assembly to reassess the proposed tax bill, stressing that Nigeria must adopt policies that encourage investment rather than deter it.

“The Bill represents a potential policy shift that could undermine decades of progress in attracting Foreign Direct Investment and cultivating a dynamic, diversified economy,” he said.

While the debate continues, the National Assembly is presently reviewing the bill amid growing concerns from stakeholders across the business community.