The Federal Government is introducing the Economic Development Incentive as part of its ongoing tax reform efforts.
This new initiative is designed to replace the current Pioneer Status Incentive and address its inefficiencies. The EDI will directly link tax relief to measurable investments, encouraging genuine economic activity and fostering growth in key sectors.
This was disclosed in a keynote address, by the Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, at BusinessDay’s Policy Intervention Series on Tuesday in Lagos.
Oyedele pointed out that a thorough review of the Pioneer Status Incentive uncovered structural flaws that have reduced its effectiveness. He explained, “Once granted Pioneer Status, companies can import goods classified as ‘pioneer products’ tax-free, enabling them to operate without tax obligations, even with minimal value added to the economy.”
He also mentioned that while the PSI was originally intended to promote investment, it has created loopholes and ambiguities. One such issue is that businesses frequently continue to benefit from extended tax relief even after the designated holiday period has ended.
“The assets used during the Pioneer period are essentially frozen in time,” Oyedele stated.
“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 highlighted that the PSI complicates the government’s ability to quantify revenue forgone and makes it challenging for investors to clearly assess the value of the incentive, thereby undermining transparency on both ends.
The proposed Economic Development Incentive moves away from the one-size-fits-all model and focuses on priority sectors, particularly manufacturing, followed by services and infrastructure, which have significant multiplier effects on the economy.
A key feature of the scheme is the introduction of minimum investment thresholds, ensuring that only scalable and impactful projects qualify. For example, companies in capital-intensive sectors like utilities would need to invest a minimum of 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.”
Unlike blanket tax holidays, the EDI offers companies a 5 percent annual tax credit over five years, totaling 25 percent of the value of their qualifying investment. This benefit is in addition to existing capital allowances, making the scheme particularly appealing to long-term investors.
Importantly, approval under the scheme does not imply that the investment has already been made. It only confirms that the company has a verified plan. The incentive is activated only after the capital is actually deployed, and all investments will be subject to inspection by the Industrial Inspectorate Division.
