Government in Nigeria has developed a
package of incentives for various sectors of the economy as a way of promoting
commerce and industry. One of such investment incentives is the Industrial
Development (Income Tax Relief) Act, Cap 17, LFN, 2004 (“IDITRA”), which grants
tax holidays to companies in industries that meet the conditions of being
designated Pioneer industries. Pioneer Status companies are exempted from
paying tax on their profits under the Companies Income Tax Act, for a stated
period of time. This is usually for a period of three years at the first
instance commencing on the production day.
 Section 1 IDITRA provides that
the President may declare any industry as a pioneer industry and its products
pioneer products, where he is satisfied that:

 any industry is not being carried
on in Nigeria on a scale suitable to the economic requirements of Nigeria, or
at all, or there are favourable prospects of further development in Nigeria of
any industry; or
1.     It is expedient in
the public interest to encourage the development or establishment of any
industry in Nigeria by declaring the industry to be a Pioneer industry and any
product of the industry a pioneer product.
 The Nigerian Investment Promotion
Commission (NIPC) sometime last year released the Pioneer Status Incentive
Regulations, with an effective date of 30 January 2014. The Pioneer Status
Incentive Regulations 2014 (“the Regulations”) have other requirements apart
from those in IDITRA for processing an application for Pioneer Status. The
Regulations were made pursuant to section 30 of the NIPC Act CAP. N117
LFN 2004. They set out the objectives and scope, as well as
processes/procedures guiding the application and issuance of the pioneer status
incentive. We shall examine key provisions in the Regulations and point out the
various legal issues they raise and the attendant implications.
 Application for a Pioneer
Status Incentive
Clause 3 (1) (2) of the Regulations
provides that an applicant for a Pioneer Status Incentive must:
1.     be a body corporate,
registered in Nigeria; and
2.     have incurred capital
expenditure of not less than N10 million.
 A filled application form
(obtainable for free) is to be submitted along with a list of requirements to
the NIPC. The list of requirements includes the following items:
1.     the relevant
regulatory license to operate in the sector or business activity where
2.     tax clearance
  • a
    copy of the NIPC registration certificate;
1.     evidence of payment
of a non-refundable processing fee of N200, 000.
 Some of the above requirements
are a radical departure from the provisions of IDITRA. The qualifying
requirements under IDITRA are that the applicant company must have been registered
in Nigeria and incurred a capital expenditure of not less than N50, 000 (in the
case of an indigenous-controlled company) or N150, 000, in the case of any
other company. More so, section 2 (4) IDITRA states that the applicant is
required to pay an application processing fee of N100 only. There is nothing in
IDITRA that empowers any authority to review the fees therein by regulations or
rules made pursuant to the Act.
What is more worrisome is the new
blanket requirement of NIPC Registration Certificate as one of the documents to
be submitted along with an application for pioneer status. Registration with
NIPC is provided under section 20 of the NIPC Act and it is for companies with
foreign participation. The provision does not apply to wholly indigenous-controlled
companies; whereas, the IDITRA applies to all companies doing business in
Nigeria. It would be absurd and cumbersome therefore, to subject all companies
seeking pioneer status to first register with NIPC. It would also add to the
cost of applying for pioneer status.        
Introduction of Service Charge
Part III of the Regulations introduced
a service charge to be paid by every company applying for the pioneer status
incentive. This is completely absent in IDITRA. The service charge is to be determined
by the NIPC at 2% of a company’s estimated tax savings, derived from five-year
financial projections. Where a company records losses in its projections, the
service charge is to be calculated on the higher of the following: 0.5% of its
net assets; or 0.25% of its turnover.
Clause 7 of the Regulations states that
a notification letter accompanied by an invoice would be issued by the NIPC
within two days of the determination of the service charge to the company. Upon
presentation of evidence of payment of the invoice amount, an approval letter
would then be issued to the applicant company, which is one of the documents to
be presented to the NIPC before a Pioneer Status Certificate is issued.
The introduction of the service charge
raises three issues: first, the fact that the levy is not contained in IDITRA
nor contemplated by it makes its imposition arbitrary. Secondly, it adds to the
cost of applying for pioneer status. Thirdly, the levy regardless of
profitability means that pioneer incentive may well result in additional cost
overall putting the affected companies in a worse situation than without the
Other Provisions
The Regulations additionally provide
for a periodic impact assessment to be carried out by the NIPC, for the purpose
of evaluating the utilisation of the savings obtained from the Pioneer Status
Incentive; and extenuating circumstances (including but not limited to host
community hostility, natural disasters, strikes, and insurgency) where the
pioneer incentive may be suspended and the procedures to be followed to achieve
this. There is also provision for circumstances in which the pioneer status
certificate may be revoked. These provisions are essentially in tandem with
Legal basis of the Regulations
The Regulations are made pursuant to
section 30 of the NIPC Act. Interestingly, section 30 of the NIPC Act gives the
NIPC powers to make regulations for the administration of the NIPC Act and not
for the administration of Pioneer Status Tax Incentive Regime, which is established
under the IDITRA. The legal basis for the Regulations may thus be challenged.
In fact, the NIPC is not statutorily empowered to administer pioneer status
incentives. The core legal mandate of the NIPC is the registration and
monitoring of foreign investments in Nigeria. The agency responsible for
administering pioneer status is the Federal Ministry for Industry. This is
pursuant to sections 2 and 25 IDITRA.
The argument that NIPC is a Parastatal
under the Federal Ministry for Industry and the Minister responsible  may
thus delegate his powers under IDITRA to it is simplistic. The NIPC is a
statutory body established by a law, which also defines its powers and
functions. There is need for a clear legal instrument enabling the NIPC to
perform functions not contained in its establishment law, and such legal
instrument should ordinarily form the basis for the Pioneer Status Incentive
Regulations and not the NIPC Act. This may require amendment to either the NIPC
Act or IDITRA.
The arguments in this paper against the
legality of the Pioneer Status Incentive Regulations 2014 are twofold: firstly;
the Regulations have a wrong legal basis. They are made pursuant to section 30
of the NIPC Act, whereas the principal legislation on Pioneer Status Incentive
is IDITRA. Although in practice, the NIPC is the government agency that issues
pioneer status and other investment incentives to any deserving company it is
legally wrong to base the Pioneers Status Incentive Regulations on the NIPC Act
rather than on the legal instrument under which the Minister for Industry may
have delegated his powers under IDITRA to the NIPC.
Secondly, certain clauses in the
Regulations materially contradict the IDITRA. It is argued that to the extent
that some clauses in the Regulations conflict with the principal legislation on
pioneer status incentive such clauses in the Regulations may be struck down by
the court in deserving situations. The law is trite that a subsidiary
legislation derives its authority from the principal enactment and a conflict
between the two must be resolved in favour of the latter. In the case of Nwanezie
v. Idris
(1993) 3 NWLR (Pt. 279) 1 at 16, the Supreme Court struck down
a rule of court which conflicted with a statutory provision on the same issue.
The apex court opined that a statutory provision is superior in status to a
regulatory rule made under statute. There is little to believe that the fate of
the Pioneer Status Incentive Regulations may be different if it is ever
challenged in court.  
Finally, much as one might argue
against the legality of the NIPC Regulations, it needs to be stated that IDITRA
is an old legislation, and some of its provisions are now obsolete. The Act
needs to be amended and its provisions streamlined to reflect present day
realities in the world of commerce and industry.