NACCIMA, OPSN oppose proposed taxation of FTZs in Nigeria

• Published On: 27 February 2025 at 20:42

The Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, as well as the Organised Private Sector of Nigeria, have formally opposed the proposed taxation of Free Trade Zones in the Nigeria Tax Bill 2024.

In a memorandum submitted to the National Assembly, these groups argue that imposing mandatory minimum tax rates and eliminating existing tax exemptions for FTZs could have serious consequences, including capital flight, job losses, and legal disputes that could destabilise the country's economy.

This follows the Kano State government's challenge to the constitutionality of certain provisions in the proposed tax reform bills, particularly those that give the federal government broad control over state and local tax authorities.

NACCIMA and OPSN submitted a memorandum requesting that the National Assembly remove all sections of the Nigeria Tax Bill 2024 that intended to impose new tax obligations on FTZ operators.

Hon. Dele Kelvin Oye, National President of NACCIMA, expressed concern that the proposed tax reform bill would subject FTZs to state and local government taxes, a departure from the original legal framework that protected them from multiple taxation.

He also stated that 98% of FTZs in Nigeria are privately owned and operated, emphasising the bill's potential negative impact on investor confidence and economic growth.

"The involvement of private entities raises the importance of maintaining a competitive regulatory environment that fosters investment," according to him.

"The Nigeria Tax Bill 2024 proposes amendments that threaten the operational framework of FTZs by introducing mandatory minimum tax rates and removing existing tax exemptions under NEPZA and OGFZA."

According to Oye, these changes are likely to reduce investor confidence and have a negative impact on long-term investment strategies.

"The proposed changes to the tax regime would lead to loss of investors' confidence, as the removal of foundational tax exemptions can trigger capital flight, as investors may seek jurisdictions with more favourable conditions for business."

He warned that the proposed amendments could result in job losses, stifle the growth of domestic industries that rely on FTZs, and spark widespread legal disputes, ultimately destabilising the country's economic landscape.

"The proposed amendments to the Nigeria Tax Bill 2024 jeopardise the current framework, which has successfully attracted significant foreign investment and fuelled economic growth. The Senate must take prompt and decisive action to ensure stability in this critical sector.

"We urge the committee (National Assembly) to address these concerns and take immediate action to maintain the integrity and attractiveness of Nigeria's FTZs to both current and prospective investors.

"By consolidating NACCIMA's research, insights, and recommendations, this presentation seeks to encourage measured discussion and legislative action to secure the economic future of Nigeria through its Free Trade Zones."

He also urged amendments to the Nigeria Export Processing Zones Authority (NEPZA) and Oil and Gas Free Zone Authority (OGFZA) laws to protect tax breaks. In addition, he proposed suspending the new tax laws for 10 to 15 years to allow businesses to adjust their financial models.

The Kano State government has challenged the constitutionality of certain provisions in tax reform legislation that give the federal government broad authority over state and local tax authorities.

Alhaji Umar Jalo, Permanent Secretary, Office of the Secretary to the State Government, stated the government's position on Wednesday at a public hearing on the bills organised by the House of Representatives Committee on Finance.

Jalo urged the removal of provisions that give the tax reform bill constitutional precedence over other laws.

"This clause is objectionable because it gives this bill a constitutional status similar to military rule, which cannot be tested for constitutional validity. The supremacy provision should be removed.

"These provisions are substantially in breach of the Constitution of the Federal Republic of Nigeria, 1999, as the National Assembly lacks the competence to legislate on matters exclusively affecting state and local governments," according to him.

Jalo expressed concern about the proposed VAT increase of 7.5% to 15% by 2030, warning that it would exacerbate the cost-of-living crisis. He said: "Increasing the VAT rate at a time when Nigerians are facing an unprecedented cost of living crisis will create more difficulties for families and elevate their levels of vulnerability and deprivation."

Rather than increasing VAT rates, the Kano State government advocated for improved tax collection efficiency. It stated, "Available data suggests ample room for improvement in coverage and collection efficiency." Weak compliance is responsible for a significant portion of the inefficiency.

It emphasised that public revenues, which are currently around 10% of GDP, are insufficient to address the country's growing development challenges.

Jalo stated, "The fiscal space needs to be expanded." Currently, public revenues of around 10% of GDP are insufficient to address development challenges. A more favourable fiscal environment will provide enormous opportunities for governors to fulfil their promises, such as achieving the Sustainable Development Goals (SDGs), reducing poverty, and rebuilding infrastructure for growth, wealth, and job creation."

Adewale Adeniyi, the Comptroller General of the Nigeria Customs Service, stated that the tax reform bills are intended to make Nigeria more business-friendly and competitive. However, he expressed concern about possible jurisdictional conflicts.

He clarified: "Our concerns are laid out in a 17-page document, but key areas of conflict include Section 23, 29, and 41A of the Joint Revenue Bill."

The customs boss stated that Section 162 of the bill effectively "legislates the Nigeria Customs Service out of existence."

He emphasised that, while taxation is an important revenue-generating tool, customs duties have broader purposes, such as promoting industrialisation, preventing environmental pollution, and protecting public health.

"The UK experience is instructive," Adeniyi said, referring to the 2005 merger of the UK's customs and tax functions, which was later reversed due to operational inefficiencies.

He went on: "In 2012, the UK separated border control functions, acknowledging the distinct nature of customs operations."