The Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture and the Organised Private Sector of Nigeria have formally opposed the proposed taxation of Free Trade Zones as outlined in the Nigeria Tax Bill 2024.
In a memorandum submitted to the National Assembly, these groups argue that introducing mandatory minimum tax rates and removing existing tax exemptions for FTZs could lead to significant negative consequences, including capital flight, job losses, and legal disputes that may destabilize the nation’s economy.
This follows the Kano State government challenge on the constitutionality of certain provisions in the proposed tax reform bills, particularly those granting the federal government extensive control over state and local tax authorities.
The memorandum, which was submitted by NACCIMA and OPSN, called on the National Assembly to remove all sections of the Nigeria Tax Bill 2024 that intended to impose new tax obligations on operators of FTZs.
The National President of NACCIMA, Hon. Dele Kelvin Oye, expressed concerns that the proposed tax reform bill would subject FTZs to state and local government taxes, deviating from the original legal framework that shielded them from multiple taxation.
He also highlighted that 98% of FTZs in Nigeria are privately owned and developed, stressing the potential negative impact of the bill on investor confidence and economic growth.
“The involvement of private entities raises the importance of maintaining a competitive regulatory environment that fosters investment,” he added.
“The Nigeria Tax Bill 2024 proposes amendments that threaten the operational framework of FTZs by introducing mandatory minimum tax rates and removing existing tax exemptions under NEPZA and OGFZA.”
Oye said “These changes are poised to diminish investor confidence and negatively impact long-term investment strategies.
“The proposed changes to the tax regime would lead to loss of investors’ confidence, as the removal of foundational tax exemptions can trigger capital flight, as investors may seek jurisdictions with more favourable conditions for business.”
He warned that the proposed amendments could lead to job losses, hinder the growth of domestic industries that depend on FTZs, and trigger extensive legal disputes, ultimately destabilizing the country’s economic landscape.
“The proposed amendments within the Nigeria Tax Bill 2024 threaten the existing framework that has successfully drawn significant foreign investments and fostered economic growth. Prompt and decisive action from the Senate is crucial to ensuring stability in this vital sector.
“We urge the committee (National Assembly) to evaluate these concerns and take immediate action to preserve the integrity and attractiveness of Nigeria’s FTZs for both current and prospective investors.
“By consolidating NACCIMA’s research, insights, and recommendations, this presentation seeks to encourage measured discussion and legislative action to secure the economic future of Nigeria through its Free Trade Zones.”
He also urged amendments to the Nigeria Export Processing Zones Authority (NEPZA) and Oil and Gas Free Zone Authority (OGFZA) laws to preserve tax incentives. Additionally, he called for a suspension of the new tax laws for 10 to 15 years to give businesses time to adjust their financial models.
The Kano State government has challenged the constitutionality of certain provisions in the tax reform bills that grant the federal government extensive control over state and local tax authorities.
Permanent Secretary, Office of the Secretary to the State Government, Alhaji Umar Jalo, stated the government’s position on Wednesday during a public hearing on the bills organized by the House of Representatives Committee on Finance.
Jalo urged the removal of provisions that grant the tax reform bill constitutional supremacy over other laws.
“This clause is objectionable as it grants this bill a constitutional status similar to military rule, which cannot withstand the scrutiny of constitutional validity. The supremacy provision should be deleted.
“These provisions are substantially in breach of the Constitution of the Federal Republic of Nigeria, 1999, as the National Assembly lacks the competence to legislate on matters exclusively affecting state and local governments,” he said.
Jalo expressed concern over the proposed VAT increase from 7.5% to 15% by 2030, warning that it would worsen the cost-of-living crisis. He stated, “Increasing the VAT rate at a time when Nigerians are facing an unprecedented cost of living crisis will create more difficulties for families and elevate their levels of vulnerability and deprivation.”
The Kano State government advocated for improved tax collection efficiency instead of increasing VAT rates. It stated, “Available information suggests ample room for improvement in coverage and collection efficiency. Weak compliance accounts for a significant portion of the inefficiency.”
It noted that public revenues, currently around 10% of GDP, are inadequate to tackle the country’s growing development challenges.
Jalo said, “The fiscal space needs to be enlarged. The public revenues at approximately 10 percent of GDP are currently too small relative to the daunting challenges of development.
“A more auspicious fiscal space will provide tremendous opportunities for the governors to deliver on their promises, including achieving the Sustainable Development Goals (SDGs), reducing poverty, and rebuilding infrastructure for growth, wealth, and job creation.”
The Comptroller General of the Nigeria Customs Service, Adewale Adeniyi, stated that the tax reform bills aim to make Nigeria more business-friendly and competitive. However, he expressed concerns about potential jurisdictional conflicts.
He said “Our concerns are laid out in a 17-page document, but key areas of conflict include Section 23, 29, and 41A of the Joint Revenue Bill.”
The customs boss pointed out that Section 162 of the bill essentially “legislates the Nigeria Customs Service out of existence”.
He emphasized that while taxation is a crucial revenue-generating tool, customs duties serve broader purposes, including promoting industrialization, preventing environmental pollution, and safeguarding public health.
The UK experience is instructive,” Adeniyi said, referencing the 2005 merger of customs and tax functions in the UK, which was later reversed due to operational inefficiencies.
He stated, “In 2012, the UK separated border control functions, acknowledging the distinct nature of customs operations.”
