The federal government is proposing a new investment-driven incentive framework to address the long-standing inefficiencies in the current Pioneer Status Incentive (PSI).
The initiative known as the Economic Development Incentive (EDI), is designed to stimulate real economic activity by tying tax relief directly to verifiable investments.
This was the focus of a keynote address delivered by Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, at BusinessDay’s Policy Intervention Series held in Lagos.
According to Oyedele, a close review of the Pioneer Status Incentive revealed structural flaws that have undermined its effectiveness. “Once granted Pioneer Status,” he explained, “companies may import goods classified as ‘pioneer products’ tax-free, effectively allowing them to operate without tax obligations, even with minimal value addition to the economy.”
Oyedele further explained that while the Pioneer Status Incentive (PSI) was originally intended to stimulate investment, over time it has exposed significant loopholes and ambiguities.
He stated that, “Assets used during the Pioneer period are essentially frozen in time. 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 emphasized that the PSI 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 Economic Development Incentive is a shift from the traditional one-size-fits-all approach by targeting priority sectors, primarily manufacturing, followed by services and infrastructure, known for their strong multiplier effects.
Another notable feature of the scheme is the introduction of minimum investment thresholds to ensure only scalable, high- impact projects benefits. 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.
Explaining the working of the initiative, he pointed out that unlike blanket tax holidays, the EDI grants companies a 5 per cent annual tax credit over five years, totaling 25 per cent of the value of their qualifying investment. This credit is granted in addition to existing capital allowances, making the scheme more attractive to long-term investors.
The approval under the scheme does not equate to immediate benefit. It only confirms that the company has a verified plan. The incentive kicks in only after capital is deployed, and all investments are subject to inspection by the Industrial Inspectorate Division.
Oyedele illustrated how the system operates using practical examples. If a company invests N10 billion in Year 1, it earns a N500 million tax credit each year for five years.
If an additional N5 billion is invested in Year 2, that new investment begins its own five-year 5 percent cycle, N250 million annually until Year 6. If the company continues investing progressively, each round of investment starts a new five-year cycle of tax credits, potentially extending the benefit period up to 10 years.
He further stated that if a firm has a N15 million tax liability in a given year and applies N25 million in tax credits, its liability is cleared, with the N10 million balance carried forward. subsequent years. However, unused credits are forfeited if companies fail to follow through on their investment plans, ensuring only consistent and credible investors benefit.
