Authored By: Whi'nom Blessing Bitrus
Nigerian Law School
MEANING AND PURPOSE OF TAX RELIEFS
Tax relief is defined as the reduction in the amount of tax that a person or company has to pay, for example because of expenses associated with their business or property. It is also a reduction in the amount of tax a person or company has to pay.[1] Tax reliefs are exemptions from charges placed on total income made by an individual, company, capital or any type of income, which ordinarily would be subject to taxation. One of purposes of taxation on income is to generate revenue for the government, however some categories of income may be exempted from such impositions. This could be for a number of reasons, such as: entrepreneurship, innovation, foreign investments, etc. The first is to encourage citizens or resident persons to build the economy by expanding a particular sector or industry. This is closely tied to the second example which is innovation. Where the area of business is fairly new, income accruing to such business may not be taxes, for example, stamp duties and capital gains tax. In order to encourage foreign investments in a country, certain taxes may not be imposed on the businesses under consideration.
TAX RELIEFS UNDER THE NIGERIA TAX ACT
The tax reliefs found under the Nigeria Tax Act are: Specialized Trade or Business, Relief for Double Taxation, tax exemptions found in Section 162 and Section 163, Economic Development Tax Incentives, Exemption from Stamp Duties, Exemption from Value Added Tax.
Pursuant to section 60 of the Nigeria Tax Act, the Second Schedule to the Act provides in paragraph (3) to the effect that an export processing zone entity[2] is exempt from tax where its total sales arise from the export of goods and services, or serve as inputs into goods or services exclusively for export; and where not more than 25% of its sales arise from the sale of goods or services to the customs territory in Nigeria. This provision is subject to paragraph (4) of the Second Schedule to the Nigeria Tax Act and also to Section 57 of the same Act.[3] Likewise, reliefs for double taxation are provided for in section 120 of the Act to the effect that income or profit of a resident of Nigeria which has been charged to tax in the source country, and that income or profit is also chargeable to tax in Nigeria, the tax paid outside Nigeria may be allowed as a credit against the tax payable in Nigeria.[4] Therefore, this this relief is not absolute, as the remaining income is still chargeable in Nigeria. Similarly, any country with which Nigeria has entered a treaty for the purpose of providing relief from double taxation, shall be in respect of income tax paid under the laws of treaty partner against income taxes imposed under the Act.[5] In addition, surcharge which is imposed at a rate of 5% on fossil fuel is not applicable with respect to: clean or renewable energy products; household kerosene; cooking gas; and compressed natural gas (CNG).[6]
Furthermore, section 163 of the Act provides for tax exemptions with respect to income earned from profits or gains accrued from a disposal of assets of any person being a statutory or registered friendly society, where the profits or gains are not derived from a trade or business carried on by such society; a co-operative society registered under any enactment or law relating to co-operative societies, not being profits or gains from any trade or business carried on by that society; engaged in educational, religious or charitable activities of a public character where the profits or gains are not derived from a trade or business carried on by such person; a trade union registered under the Trade Unions Act where the profits or gains are not derived from a trade or business carried on by such trade union; and so on.[7] Also, the Act provides for Economic Development Incentives under Sections 166-183. The sectors prioritized are as follows: Aquaculture, Refining of Crude Oil and gas, Manufacture of Electrical Equipment and Electronics, Manufacture of Electrical Equipment and Electronics, Electricity and Gas Supply, etc.[8]
Additionally, the Act provides in Part III of exemption from stamp duties with respect to transfer of shares in Government or legislative stocks or funds of Nigeria; any instrument for sale, transfer or other disposition, either absolutely or by way of mortgage, or otherwise, of any ship or vessel or any part, interest, share or property of or in any ship or vessel; any instrument on which the duty would be payable by a Nigerian Government or any of its ministries, departments or agencies; any instrument in which the duty would be payable by any consular officer arising out of his official functions provided the foreign government he represents grants similar exemption to Nigerian consular officers.[9] In the same vein, the Act provides for exemption from Value Added Tax with respect to the following: oil and gas exports; crude petroleum oil and feed gas for all processed gas; goods purchased for use in humanitarian donor funded projects; baby products; locally manufactured sanitary towels, pads or tampons.[10] Similarly, items such as: basic food items; all medical and pharmaceutical products including medicinal herbal products; educational books and materials; fertilisers; locally produced agricultural chemicals; locally produced veterinary medicine; locally produced animal feeds; live cattle, goats, sheep and poultry; agricultural seeds and seedlings; electricity generated by generation companies (GENCOs) and supplied to National Grid or Nigeria Bulk Electricity Trading Company (NBET); are charged at 0%.[11] The President of Nigeria may also exempt certain supplies from Value Added Tax which are the subject of an agreement into by Nigeria with another country for the provision of developmental financing for any project in Nigeria, to be published in the Official Gazette.[12]
FINAL THOUGHTS
The tax reliefs and exemptions provided in the Act are harbingers of growth for the economy as entrepreneurs engaged in sectors of priority are exempted from paying tax to a term of years and within a stipulated threshold. The tax exemptions in the Act[13] serve as a tool for stability in the economy and encourages business owners to engage in certain sectors of the economy.
[1] ‘Definition of Tax Relief’ (Collins Dictionary) <https://www.collinsdictionary.com/dictionary/english/tax-relief>
[2] An export processing zone entity means an approved and licensed enterprise under Oil and Gas Free Zones Authority Act Cap. O5, Laws of the Federation of Nigeria, 2004.
[3] Similarly, Paragraph (5) of the Nigeria Tax Act provides that the profits of an export processing zone entity shall be fully subject to tax effective from 1st January, 2028, in respect of its sales to the customs territory in Nigeria, regardless of the percentage of the sales. This is notwithstanding the provisions of paragraph 3(ii) of the Act, except that what is contained in the said Schedule is paragraph (3)(b) with respect to export processing zone entity. Therefore, this article is based on the implication of the Paragraph, and not the literal citation.
[4] Section 120 of the Nigeria Tax Act
[5] Section 121(1) and (2) of the Nigeria Tax Act
[6] Section 162 of the Nigeria Tax Act
[7] Section 163 (1)(a)(i)-(v) of the Nigeria Tax Act. See also section 163(3) of the Nigeria Tax Act
[8] Tenth Schedule to the Nigeria Tax Act in pursuance of Section 166 of the same Act. The Schedule contains all the priority sectors for tax incentives for Economic Development Incentives
[9] Section 185 (a)-(d) of the Nigeria Tax Act. See also Paragraphs (e)-(i) of the same Section of the Act
[10] Section 186 (1)(a)-(e) of the Nigeria Tax Act. See also Paragraphs (f)-(o) of the same Section of the Act
[11] Section 187 (a)-(j) of the Nigeria Tax Act. See also Paragraphs (k)-(s) of the same Section of the Act
[12] Section 188 of the Nigeria Tax Act
[13] It should be noted that the tax reliefs contained in this article and derived from the Nigeria Tax Act are not exhaustive.
