NACCIMA Warns Against Taxing Free Trade Zones

The Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) has issued a warning to the federal government, urging it not to impose taxes on free trade zones (FTZs). According to NACCIMA, such a move could lead to a significant outflow of foreign investments, potentially threatening up to $200 billion in investments and risking the loss of 600,000 jobs.

The proposed Nigeria Tax Bill 2024 has sparked widespread controversy due to its provisions, which aim to introduce minimum tax rates and remove long-standing tax exemptions for businesses operating within free trade zones (FTZs). This shift is viewed as conflicting with Nigeria’s industrialization and investment goals.

In a statement, NACCIMA’s National President, Dele Oye, expressed strong concerns regarding the proposed amendments to the Tax Bill, specifically Sections 57, 60, 198(2), and 198(3). These changes, according to NACCIMA, threaten to undermine crucial incentives that have helped sustain investments in free trade zones since the inception of the Nigeria Export Processing Zones Act in 1992.

“Stripping away established tax exemptions is a drastic measure that will diminish investor confidence and jeopardize Nigeria’s standing in the global investment community,” said Oye, who is also the chairman of Nigeria’s Organised Private Sector (OPS).

Since 1992, FTZs have played a pivotal role in Nigeria’s economy by attracting investment, fostering industrialization, and creating jobs. These zones have flourished thanks to special tax incentives. However, the proposed amendments in the Tax Bill—particularly Sections 57, 60, 198(2), and 198(3)—are seen as directly opposing the original framework by introducing minimum tax rates and eliminating key exemptions that have attracted investment.

“It is imperative that we understand the potential ramifications of these proposed changes. Stripping away established tax exemptions is a drastic measure that will diminish investor confidence and jeopardize Nigeria’s standing in the global investment community,” Oye added.

Oye further highlighted that out of Nigeria’s 50 FTZs, 48 were developed through private-sector investments. The tax exemptions within these zones have been instrumental in attracting investors, creating jobs, and generating over N650 billion in government revenue from Customs duties and related activities.

Oye also noted that stakeholders were not properly consulted before the announcement of the tax reforms. The FTZ association and businesses were only informed of the intended amendments on February 20, 2024, when the chairman of the fiscal policies and tax committee, Mr. Taiwo Oyedele, revealed the proposed changes at the 3rd Nigerian Economic Zones Association conference.

“The provisions of the Nigeria Tax Bill 2024 could trigger capital flight, as companies may relocate to neighboring markets such as Ghana and Angola, which offer friendlier investment environments,” Oye warned.

Historical data from the Nigeria Export Processing Zones Authority (NEPZA) and the Oil and Gas Export Free Zone Authority (OGFZA) show that over N650 billion has been generated from these zones through Customs duties and other economic activities. The removal of these tax incentives would not only halt this revenue stream but also result in serious economic consequences for the country.

Oye further cited the success of the Lagos Free Zone, home to the Lekki Deep Sea Port, as an example of the importance of maintaining tax incentives. The port’s recent achievements, including the docking of the largest container vessel in Nigerian history, demonstrate the need for an investment-friendly environment.

“By compromising the FTZ incentives, Nigeria risks failing to meet its broader economic diversification agenda. FTZs not only stimulate job creation but also enhance Nigeria’s position in the global market. Other countries, such as the UAE, offer zero corporate tax rates and robust support for businesses within their FTZs, highlighting what Nigeria could lose if these changes are implemented,” Oye concluded.

In response to the growing concerns, NACCIMA’s Director General called on the National Assembly to reconsider the proposed tax amendments, advocating for policies that promote long-term investment.

“As NACCIMA, we urge the National Assembly to reassess the implications of the proposed Nigeria Tax Bill 2024 on the Free Trade Zone Scheme. This bill represents a policy shift that could undermine decades of progress in attracting Foreign Direct Investment (FDI) and nurturing a diversified economy. Protecting Nigeria’s FTZ framework is crucial for sustaining economic growth, job creation, and improving Nigeria’s global competitiveness,” Oye said.

He also warned that the proposed changes could lead to significant investment losses, litigation, and disputes between Nigerian entities and their international partners. He suggested that while the government should not completely reverse the amendments, a delay in their application would allow investors to recover their investments and adjust their business models.

“This policy somersault through legislation is bound to destabilize Nigeria if not carefully handled, as it has already slowed down activities within FTZs and caused potential investments to be put on hold,” Oye concluded.