The Manufacturers Association of Nigeria (MAN) has expressed its support for the proposed reform of free-trade zone operations in Nigeria. This reform aims to clarify the objectives and tax implications associated with export processing zones and export free trade zones, as outlined in the NEPZA Act.
The primary purpose of these zones is the manufacturing of goods for export, along with other activities related to international services, transshipment, and services within the zones. It is crucial to understand that activities such as banking are meant to be conducted within the zones and for export purposes, not across Nigeria without tax obligations.
Members of MAN have raised concerns regarding tax incentives, particularly the exemption from taxes for approved enterprises operating within a zone. Section 8 of the NEPZA Act exempts these enterprises from all Federal, State, and Local Government taxes, levies, and rates. However, sales to the customs territory are not approved activities and are not within the zones.
Section 18 of the Act permits the sale of goods and services to the customs territory, but this does not confer tax exemption on these sales. Over time, the provisions of sections 8 and 18 have been misinterpreted to imply tax exemption for sales into the customs territory, which is not consistent with the law. This misinterpretation undermines tax-paying entities operating within the customs territory and creates an uneven playing field, impacting over 2,500 MAN members who operate outside the zones.
The proposed tax reform bill before the National Assembly aims to address this issue by clarifying that sales to the customs territory are taxable, including import duties, VAT, and CIT purposes. This will ensure equitable tax treatment for all sellers in the customs territory, aligning with the intent and letters of the enabling laws and global best practices for free zones.
For instance, Ghana allows up to 30% sales into the customs territory subject to payment of duties and taxes, including CIT, whereas Nigeria allows 100% sales. Exports by a zone entity are tax-free only for 10 years in Ghana, after which up to 8% CIT will apply. In contrast, Nigeria offers indefinite tax exemption on exports.
In conclusion, the proposed reform will ensure equitable tax treatment for companies operating in the customs territory and those licensed to operate within the free zones, enabling fair competition while protecting the country’s tax base. Licensed entities will also enjoy similar incentives available to entities within the customs territory concerning their sale of goods and services into the customs territory, resulting in a win-win outcome
