Pioneer Status and the “First Year Rule”: The Myth and The Reality

Introduction

On Wednesday, August 2, 2017, the Nigerian Federal Executive Council approved the addition of 27 new industries and products to the list of industries considered pioneer. An industry or product is designated as pioneer:

  1. if the industry or product is not being carried on in Nigeria on a scale suitable to the economic requirements of Nigeria; or
  2. if it is expedient in the public interest to encourage the development or establishment of such industry in Nigeria.

On the back of the announcement by the Nigerian government, the Federal Ministry of Industry, Trade and Investment (“FMITI”) released the “Application Guidelines for Pioneer Status Incentive” (the “Guidelines”). The Guidelines, amongst other things, provide for “considerations and mode of application” for Pioneer Status Incentive (“PSI”).

One of the considerations under the Guidelines is that an applicant must make an application for the grant of PSI in the first year of production/service (the “First Year Rule”). This briefing note examines the provisions of the Industrial Development (Income Tax Relief) Act (“IDITRA”) which is the legal framework for PSI with a view to determine the basis for the First Year Rule, both at law and tax policy-wise.

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