PIONEER LEGISLATION

2.1 Introduction
The promulgation of Industrial Development (Income Tax Relief) Decree 1971 was one
of the steps taken by the Federal Government of Nigeria to accelerate the industrial
development of the country. The present legislation is Industrial Development (Income
Tax Relief) Act 2007 and it contains various investment incentives available to industries
in Nigeria.
The Act states that where the National Council of Ministers is satisfied that:
• Any industry is not being carried on in Nigeria on a scale suitable to the economic
requirements of Nigeria, or
• There are favourable prospects of further development in Nigeria or any industry, or
• It is expedient in the public interest to encourage the development or establishment of
any industry in Nigeria; it may declare the industry a pioneer industry and products of
the industry-pioneer products.

2.2 What the relief is all about

The relief available to Nigeria companies as contained in the Decree is a kind of tax
incentive to accelerate the industrial development of the country and other allied
businesses.
The relief is that any profit of the company covered by the pioneer certificate during the
pioneer period is exempted from companies income tax for a minimum period of 3 years.
The FEC may, in application in writing within one month of the end of initial relief period;
grant extension of the pioneer period to a maximum of 5 years if the pioneer company
satisfied the following conditions:
(i) The rate of expansion, standard of efficiency and the level of development of the
company.
(ii) The implementation of any scheme for:
- The utilisation of local raw materials in the processes of the company.
- The training and development of Nigerian personnel in the relevant industry.

(iii) The relative importance of the industry in the economy of the country.

2.3 Pioneer Status by Product

Where the government is satisfied that any industry is not being carried on in Nigeria on
a scale suitable to the economic requirement of Nigeria, the Federal Government will
react by declaring the industry to being pioneer industry and any other product of the
industry to be a pioneer product.
2.3.1 Conditions for granting pioneer status
The conditions that must be met by an applicant are as stated hereunder:

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 (i) Any applicant must be engaged in an activity listed as a pioneer industry or
pioneer product;
(ii) An applicant must provide evidence of all required legal and regulatory
compliance documentation;
(iii) An applicant must demonstrate the tangible impact its activity (project) will have
on Nigeria’s economic diversity and growth, industrial and sectorial development,
employment, skills and technology transfer, export development and import
substitution.
(iv) An applicant must make full payment of fees promptly, when due;
(v) Each application shall be accompanied by a non-refundable fee of N200,000 only;
(vi) For any application for a pioneer certificate to be considered, the estimated cost of
non-current tangible asset to be incurred by the company on or before production
day shall not be less than:
* N100,000,000 in the case of an indigenous-controlled company or
* N100,000,000 in the case of any other company;
(vii) During the pioneer period, a performance report must be submitted to Nigerian
Investment Promotion Council annually for monitoring and evaluation purposes;
or
(viii) The National Council of Ministers must make a declaration of approval.
2.3.2 Application process for new applications
In line with the guidelines issued by Ministry of Industry, Trade and Investment in 2017
the application process for a new applicant is as follows:
(i) Write to Nigerian Investment Promotion Commission (NIPC) to agree on a date
to make a project presentation;
(ii) Agree presentation date and present project;
(iii) Make payment of application and due diligence fees to NIPC;
(iv) Submit application to the Executive Secretary of NIPC;
(v) Arrange for two visits that will be made to the companies’ project to verify the
information provided in its application;
(vi) Await the decision of NIPC on the application;
(vii) Make payment of service charge deposit;
(viii) Await the approval in principle which will be issued by NIPC;
(ix) Apply for production day certificate;
(x) Await the determination of the production day by Industrial Inspectorate
Department (IID) of Federal Ministry of Industry, Trade and Investment;
(xi) Await the issuance of the production day certificate by IID; and
(xii) Await the issuance of a pioneer status incentive certificate.

2.3.3 Application process for extension applications

The applicant should:

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 (i) Write to NIPC;
(ii) Present project;
(iii) Make fee payment;
(iv) Submit application;
(v) Arrange for NIPC staff to visit project;
(vi) Await the decision of NIPC on the application; and
(vii) Arrange for the collection of the pioneer status incentive extension certificate
which will be issued by NIPC.
An applicant may apply for extension not later than one month after the expiration of the
initial tax relief period of 3 years or an extension of one year.
2.4 Income tax relief available to a pioneer company
(i) A company holding a pioneer certificate shall be on a tax holiday for the period
stated on the certificate. The tax relief period is usually for a period of 3 years in
the first instance commencing on the date of the production day of the company,
unless cancelled or restricted in any manner by the Council;
(ii) If certain requirements are met, the Council may, at the end of the 3 years extend
the tax relief period for:
* Two periods of one year each; or
* One period of two years.
(iii) A pioneer company wishing to obtain such extension, shall apply in writing
within one month of the expiration of the initial 3 years tax relief period or any
extension thereof.
(iv) the application for extension shall contain details of all capital expenditure
incurred by the company by the requisite date.

2.5 Tax implication and accounts of a pioneer company

(i) A trade or business carried on by a pioneer company shall be deemed to have
permanently ceased at the end of its tax relief period;
(ii) In respect of that trade or business, the pioneer company shall be deemed to have
set up and commenced a new trade or business on the day next following the end
of its tax relief period;
(iii) The pioneer company shall make up accounts of its old trade or business for the
following:
* A period not exceeding one year commencing on its production day;
* Successive periods of one year thereafter; and
* A period not exceeding one year ending at the date when its tax relief period ends.
(iv) The closing figures in respect of the pioneer company’s assets and liabilities as
shown in the last accounts in respect of its tax relief period shall be used as the

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 opening figures for the accounts of the company’s new trade or business which is
that deemed to commence immediately after the company’s tax relief period.
(v) Capital expenditure incurred by the pioneer company in respect of assets acquired
during the tax relief period shall for capital allowances purposes be deemed to
have been incurred on the day next following the end of its tax relief period.

2.6 Production Day Certificate

Production day certificate is a certificate issued by the Director of Industrial Inspectorate
Division of the Federal Ministry of Industries to a pioneer company certifying the day in
which the trade or business of a pioneer company commenced.
The production day is important to a pioneer company because:
(i) That is the day when tax free period starts to run.
(ii) Qualifying capital expenditure of the pioneer company must not fall below the
statutory minimum as on that date.
(iii) It must be certified by the FIRS as the date when the company started production
at marketable quantity rate.

2.7 Cancellation of a pioneer certificate and its effective date

2.7.1 Cancellation of a pioneer certificate
A pioneer certificate granted to a pioneer company shall be cancelled under any of the
following situations:
(i) On a voluntary application for cancellation made by the company.
(ii) Where the production day is more than one year later than the probable
production day contained on the application for a pioneer certificate.
(iii) Where the level of Qualifying Capital Expenditure incurred on or before the
production day is less than the statutory amount.
(iv) Where the pioneer company decided to breach the terms of the certificate (e.g.
producing products that are not covered by the pioneer certificate).

2.7.2 Effective date of cancellation

(i) Where the company has been in business for less than one year from the pioneer
date, the effective date for the cancellation is the pioneer date.
(ii) Where the company has been in business for more than one year from the pioneer
date, the effective date for the cancellation will be the last anniversary of the
pioneer date.

2.8 Advantages and disadvantages of pioneer companies

2.8.1 Advantages
(1) Exemption from companies income tax for a minimum of 3years and maximum
of 5 years.

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 (2) Dividends declared out of pioneer profit are not taxable (i.e. free of withholding
tax)
(3) Losses incurred by the pioneer companies during the pioneer period and certified
by the Board, may be relieved after the pioneer period.
(4) The net qualifying expenditure for capital items during the pioneer period are
accumulated and are qualified for both initial and annual allowances in the new
business.

2.8.2 Disadvantages
(1) A pioneer company is prevented from carrying on any business apart from its
pioneer enterprises.
(2) There is a limitation imposed on a pioneer company in the computation of its
allowable trading loos for the purpose of income tax relief. Only reasonable,
deductible allowances are allowed for income tax purpose.
(3) There is also a limitation on a distribution of company’s dividend. No dividend
may be distributed in excess of a certain balance on its profit and loss account.
(4) A pioneer company cannot be granted loans without the written permission of the
Federal Minister of Industries.
2.9 Offences and penalties
The offences specified in the Act are:
(i) Making or presenting any declaration or statement which is false in any material
particular; and
(ii) Production of any invoice or undertaking which is false in any material particular.
As for penalties, any person who is guilty of any of the above offences, shall be liable on
conviction to a fine not exceeding N1,000 or to imprisonment for 5 years or to both such
fine and imprisonment.
Where the offence is committed by a body corporate, or firm or other association of
individuals;
(i) Every director, manager, secretary or other similar officer of the body corporate;
(ii) Every partner or officer of the firm;
(iii) Every person concerned in the affairs of the association; or
(iv) Every person who was purporting to act in any such capacity as aforesaid shall severally
be guilty of that offence and liable to be prosecuted and punished for the offence in like
manner as if he had himself committed the offence.
2.10 List of pioneer industries/products
The under listed industries or products are presently categorised as pioneer industries or
products. But the list is subject to review by the Federal Government from time to time.
(i) Cultivation and processing of food crops, vegetables and fruits;
(ii) Manufacture of cocoa products;
(iii) Processing of oil seeds;
(iv) Integrated dairy production;
(v) Cattle and other livestock ranching;
(vi) Bone crushing;

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 (vii) Deep sea trawling and processing; coastal fishing and criming; and inland lake
fishing and processing;
(viii) Manufacture of salt;
(ix) Mining of lead and zinc ores by underground mining methods;
(x) Manufacture of iron and steel from iron ore;
(xi) Smelting and refining of non-ferrous base metals and the manufacture of their
alloys;
(xii) Mining and processing of baryttes and associated minerals;
(xiii) Manufacture of oil well drilling materials containing a predominant proportion of
Nigerian raw materials;
(xiv) Manufacture of cement;
(xv) Manufacture of glass and glassware;
(xvi) Manufacture of lime from local limestone;
(xvii) Quarrying and processing of marbles;
(xviii) Manufacture of ceramic products;
(xix) Manufacture of basic and intermediate industrial chemicals from predominant
proportion of Nigerian raw materials;
(xx) Manufacture of pharmaceutical products;
(xxi) Manufacture of surgical dressing;
(xxii) Manufacture of starch from plantation crop;
(xxiii) Manufacture of yeast, alcohol and related products;
(xxiv) Manufacture of animal foodstuff;
(xxv) Manufacture of paper pulp, paper and paperboard;
(xxvi) Manufacture of leather;
(xxvii) Manufacture of articles of paper pulp, paper and paperboard;
(xxviii)Manufacture of textile fabrics and man-made fibres;
(xxix) Manufacture of products made wholly or mainly metal;
(xxx) Manufacture of machinery involving the local manufacture of substantial
proportion of components thereof;
(xxxi) Manufacture of goods made wholly or partly of rubber;
(xxxii) Manufacture of spare parts including automotive spare parts and components;
(xxxiii)Manufacture of telecommunication equipment, cables, etc;
(xxxiv) Manufacture of medical and dental equipment;
(xxxv) Manufacture of office and school stationery; and
(xxxvi) Manufacture of building and home furnishing materials.

2.11 Illustrations
Question 1
A foreign investor has been told by his Nigerian partners that the industry they intend to invest in
qualifies for “pioneer status”. He did not understand what the pioneer status is all about and has
therefore approached you as a Tax Consultant to brief him on pioneer status.
You are required to write him a letter, explaining:
(a) The pioneer status concept;
(b) Benefits of the status; and
(c) Method of applying the status.

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Question 2
Ukah Nigeria Limited was incorporated on 31st March 2014 to manufacture a pioneer product. It
was however granted a pioneer certificate with a production day certified to be 1st April, 2014.
You are given the following information.
N
st
Net profit for the year ended 31 March 2018 43,400,000
Depreciation charged for the year ended 31st March 2018 1,321,450
Capital expenditure incurred up to and including year
ended 31st March 2017 certified by the tax office are as follows:
Motor vehicles 12,500,000
Plant & machinery 14,250,000
Industrial buildings 18,900,000
Non-industrial buildings 9,200,000
st
Accumulated profit at 31 March, 2017 37,250,000
It is not the intention of the directors to apply for an extension of the pioneer period.
You are required to compute the tax liabilities for relevant assessment years.

Question 3
Success Nigeria Limited was granted pioneer status with production day as April 1, 2006. At the
expiration of its initial pioneer period, the company did not apply for extension. The company
has been making up its accounts to March 31 of every year.
You are given the results below:

Year ended N’million

March 31, 2010 30
March 31, 2011 34
March 31, 2012 36
March 31, 2013 48
March 31, 2014 60

Required:
ai. Compute the Assessable Profits for the relevant years of assessment.
ii. What is the Tax Holiday available to a pioneer company under the Industrial
Development (Income Tax Relief) Act 2007?
iii. What is the Tax Holiday for Success Nigeria Limited in (a) I above?
b. Describe three circumstances under which a pioneer certificate issued to a company can
be revoked.

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Question 3
Kemmy Overseas are institutional investors who want to invest in Nigeria as part of their foreign
investment strategy. They are interested in the processing of oil seeds. They incorporated
Akinsanya Hi-tech Millers Limited to enable them do business in Nigeria. It was granted a
pioneer certificate on 1st July, 2014. The trading result for the year ended 30th June, 2018 was
given as follows:
N N
Gross profit 53,060,000
Less: Expenses
Administrative expenses 13,750,000
Management expenses 18,510,000
Medical 1,000,000
Accountancy 1,500,000
Legal fees ,600,000
Entertainment 1,200,000
36,560,000
Net profit 16,500,000
Included in management expenses is N5,050,000 being depreciation for the year. The following
additional information was made available:
(i) Accumulated profit as at 30th June, 2017 N8,050,000
(ii) Capital expenditure incurred up to, and including year ended 30th June, 2017 as certified
by the Federal Inland Revenue Service
2017 2018 2019
N N N
Buildings 2,000,000 1,000,000 1,200,000
Plant and machinery 3,500,000 2,200,000 2,000,000
Motor vehicles 1,500,000 1,200,000 1,000,000
Plantation 1,800,000 1,500,000 1,200,000
(iii) The company sources for its oil seeds from its plantation.
You are required to compute the tax liabilities for years 2017-2019.

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