…New tax credit scheme to replace pioneer status incentive
Nigeria is looking to boost its economy and expand business opportunities as it seeks to provide incentives to specific sectors in a bid to stimulate growth and drive investments in its new tax reforms bills.
The priority sector incentive outlined in the Eleventh Schedule, dubbed ‘Economic Development Incentives,’ aims to revitalise key sectors such as manufacturing, renewable energy, healthcare, and transportation for sustainable growth.
“The major focus of the priority sector incentive is manufacturing. We feel like at this point in our national development, we have to prioritise manufacturing because it comes with a lot of challenges,” said Taiwo Oyedele, chairman, Presidential Fiscal Policy and Tax Reforms Committee, at the BusinessDay Policy Intervention series in Lagos on Tuesday.
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Africa’s most populous nation is seeking to harmonise its tax laws in a push to stimulate needed annual growth, lower fiscal deficit, improve its tax as a percentage of gross domestic product ratio while making the economy more competitive.
The country’s tax-to-GDP ratio is one of the lowest globally at 10 percent in 2023, but unofficial data suggest that it has increased to 13.6 percent with the authorities targeting 18 percent in the next two years.
Efforts by the government are also expected to lower debt servicing as a percentage of revenue from 97 percent in 2022 to 50 percent on renewed fiscal management.
Oyedele, who spoke to the theme ‘Beyond the controversy: harnessing tax incentives for growth in Nigeria’s priority sectors,’ said the tax reform bills made provision for this scheme to replace the pioneer status Incentives, which were plagued with “a lot of loopholes,” making it impossible for the government to get benefits from the tax credit it ‘gives away.’
Corroborating this, Olamide Obajimi, partner, Olaniwun Ajayi, said the pioneer status incentive “may be too much of a tax expenditure given by the government to businesses and which governments may not be able to track.”
He however called on the government to leverage technology in the implementation process of the newly introduced scheme, stressing that “I do not think that investors will jump at a situation where the priority sector initiative is not properly implemented.”
Oyedele explained that the priority sector incentive exempts businesses from paying taxes for the period of five years on meeting certain conditions.
“This priority sector incentive says, when you meet the conditions we’re going to focus on the investments. This is based on the amount of investments you have made that we can validate. So the industrial inspectorate division will validate the value of the investments. You get 5 percent of the value of the assets as tax credits,” Oyedele said.
“For every asset that you buy, you get five percent tax credits for five years. That means effectively you’re getting 25 percent as tax credits,” he explained.
For Oyedele, the new incentive scheme is better for investors and for the government, describing it as “people-centered, growth-focused, and efficiency-driven.”
According to Samuel Agbeluyi, president of the Chartered Institute of Taxation (CITN), the authorities need to do more in terms of public awareness.
Agbeluyi emphasised the need for political officials to also join in the advocacy by ensuring tax compliance as a way of inspiring the citizens not to evade taxes.
“I would be very happy to see the president of this country showing his tax cards to validate that he is a tax-compliant citizen of this country. This will make a lot of impact in the minds of the people,” he said.
Read also: Nigeria to introduce new tax credit scheme to replace pioneer status incentive
New tax credit scheme
The new scheme, known as the Economic Development Incentive (EDI), is designed to stimulate real economic activity by tying tax relief directly to verifiable investments.
“The assets used during the pioneer period are essentially frozen in time,” Oyedele explained. “They’re treated as if acquired after the incentive ends—meaning companies only start claiming deductions once the holiday period is over. This creates long-term tax advantages that go well beyond the policy’s original intent.”
He also pointed out that the pioneer status makes it difficult for the government to quantify revenue forgone and for investors to clearly assess the value of the incentive—undermining transparency on both sides.
The proposed tax credit or EDI is a departure from the one-size-fits-all model. Instead, it’s structured around priority sectors -primarily manufacturing, followed by services and infrastructure – with strong multiplier effects on the economy.
Another key design feature is the introduction of minimum investment thresholds to ensure only scalable and impactful projects qualify. For instance, companies operating in capital-intensive sectors like utilities would need to invest at least N200 billion to be eligible for the tax credit.
“The EDI is about real impact,” Oyedele said. “It’s time-bound, sector-targeted, and tied to actual capital deployment—not just approval on paper.”
Crucially, approval under the scheme does not mean the investment has already been made. It only confirms that the company has a verified plan. The incentive kicks in only after capital is actually deployed, and all investments are subject to inspection by the Industrial Inspectorate Division.
