…as manufacturers association call for fair implementation

By Gloria Ikibah

The Oil Producing Trade Sector (OPTS) has raised concerns over four key tax reform restrictions: limited access to tax incentives, increased effective tax rates, exclusion of recently announced incentives, and contract stabilization issues.

Speaking at the resumed 3-day public hearing on the Tax Reform Bills in Abuja, OPTS representative Oluwole Oladimeji highlighted specific concerns regarding Sections 57 and 85 of the proposed law. He emphasized the need for clarity on the minimum effective tax rate and investment utilization under the new framework.

“How do you work with Section 57? It introduces a minimum effective tax rate, but clarity is needed on how it will be computed,” Oladimeji stated.

He also pointed to the need for further explanation on three-year tariff limits and the application of tax credits in investment calculations.

“If I move on to another section of concern, on the three-year tariff limits, section 85, subsection 4, it talks about the three-year tariff limit on recouped tax credits. And this, if implemented, will reduce the benefits of the non-associated tax, as well as the due potential consequential fiscal derivatives.

“The third element on that list has to do with clarity that is needed with respect to section 85, subsection 1b, that says that the tax credit will not be applicable after the 10th year, i.e., before the 11th year. Our request regarding this is, one, that if we are going to have an even minimum effective tax rate at all, all taxes should be included in the basis for determining this. Secondly, that all tax credits will be utilized before the issue of any minimum tax, effective tax rate, will even arise at all.

“And then, with respect to the 11th year, that the current provision in section 85, subsection 1b should be extended by putting provision except carried forward from the 10th, so that if we are going to utilize tax credits in the 10th year, it will not be lost at all when we have only tax allowance that is also applicable. Then, another thing we would like to talk about is related to section 85, subsection 2, which provides that the incentives, tax incentives, will only be applicable to companies under the PIM. This will be the use of section 78, which covers section 78 through 88, and here we have the map incentives in there.

“So the way the thing is now, it will be only available to companies that are converted to PIM. And to cure this, we propose that there should be a remapping of the current section 78 to chapter 8, that includes incentives, so that one would not think that it is particularly restricted to companies under the particular tax regime. Because if this is not done, it will be introducing a limitation that is not in the executive order signed by the President in 2024.

“Another area of concern is section 92, subsection 3, which as currently drafted, says that the company shall be excluded from other incentives if it has utilized associated gas incentives. Now, gas incentives have typically determined a project, not a company. And the exclusion clause currently existing is overly broad and can give us other incentives.

“Another element of concern under this restriction on utilization of tax incentives has to do with section 104, which today knocks off investment tax credits enjoyable, allowable under section 4 of the deep offshore and inland leasing production sharing contract. What section 104 talks about today is only investment tax allowance.

“It has removed the investment tax credit that is currently a trade dispute. So our request is that there should be a retention of the current provision of section 4 of the deep offshore act that we are proposing. I will give you a second indicator to look at now, which has to do with increase in effective tax rates”.

In section 146, Oladimeji observed a sharp increase in the heat rate, rising from 7.5% to a progressive 15% in 2013. Additionally, sections such as 21, 27, 69, 94, and 97, along with sections 1–4, introduce penalties when P80 is due—whether on an expense or an asset that is not charged. This results in the affected expense or asset being non-deductible for tax purposes.

He furthermore noted that, the current wording of the law lacks clarity on how P80 will be treated, raising concerns that businesses might face penalties simply because of unclear payment terms. “The issue of P80 penalties has already been addressed in the Nigerian Tax Acquisition Regulations, particularly in Sections 64 and 121, which outline penalty conditions for unpaid P80.

“It is important to note that Nigeria already has a well-established legal framework for determining capital allowances and utilizing SAFE under existing laws, such as the Petroleum Profits Tax Act, the Petroleum Industry Act, the Deep Offshore and Inland Basin Production Sharing Contract Act, and CITA. The aim of the Tax Committee should be to simplify these laws, not introduce unnecessary complications.

“The oil and gas industry operates in collaboration with multiple government agencies, including the ATD, CDMA, FRS, and CBA, as well as partnerships with the NNPC. These collaborations involve project reviews, performance assessments, and audits. Therefore, tax reforms must prioritize simplification and efficiency, ensuring that regulatory burdens do not make doing business more difficult. Overloading companies with excessive tax obligations will ultimately increase costs and hinder economic growth”, he added.

The President of the Manufacturers Association of Nigeria (MAN), Otunba Francis Meshioye commended the federal government for adopting a structured and consultative approach to tax reforms. He noted that this method would facilitate early revenue generation and drive inclusive economic growth.

Meshioye expressed confidence that the proposed reforms under the Constitutional Reconciliation Bill would effectively tackle the long-standing issue of multiple and excessive taxation.

However he highlighted the growing concern over arbitrary levies imposed by regulatory bodies at various levels of government, as well as the unlawful collection of taxes and fees by non-state actors, which continue to create an unpredictable business environment.

“We look forward to the implementation of these reforms to address the persistent challenges of high taxation and restrictive policies. It is our hope that this will usher in a new era where the National Assembly refrains from approving arbitrary levies on businesses to finance government agencies,” he stated.

He cited a recent instance where businesses were required to contribute a percentage of their market capitalization to sustain certain financial indices. He warned against such measures, emphasizing that they place undue strain on businesses.

Meshioye welcomed the planned reduction of the Corporate Income Tax (CIT) rate from 30% to 27.5% in 2025 and 25% in 2026, aligning with global trends toward lower income tax rates. He described this move as a positive step that would ease financial pressure on manufacturers, attract investment, and reinforce the government’s commitment to reducing the cost of doing business in Nigeria.

Addressing concerns related to tax rates in free trade zones, he stressed the importance of maintaining clarity and ensuring that tax policies align with existing laws. He argued that rather than undermining the incentives for businesses operating within the zones, a fair tax structure would create a level playing field between companies within and outside these zones, particularly in relation to sales into the customs territory.

Meshioye underscored the need for a balanced approach to taxation, ensuring that Nigeria’s trade policies remain competitive while protecting the country’s tax base.

He pointed to Section 16 of the Real Tax Clause as a crucial reference for maintaining fairness and economic stability.

The hearing continues on Friday when the Nigerian National Petroleum Company Limited will present their observations.