Equity Professional ADV TAX

(Accountancy & Financial Tutors)

PIONEER LEGISLATION

1.1 Introduction to Pioneer Incentive

The tax incentives in Nigeria are tax reliefs or exemptions granted by the
Nigerian Government to qualified multinational investment projects or
companies whose income or profit are derived from, brought into,
accruing in or received in Nigeria, to attract foreign direct investment for
the growth and development of the Nigerian economy.

Tax incentives are categorized into cost-based tax incentives, which

include tax credits and accelerated depreciation allowances, and
profit-based tax incentives which include tax holidays and reduced tax
rates. The type of tax incentives granted is dependent on the sector,
income type, business size, and business location.

1.2 Consideration to qualify for pioneer status

In granting pioneer status to the company, the applicant must

demonstrate the tangible impact its activity will have on Nigeria's
economic diversity and growth, and the NIPC will also consider among
others the following factors;

• The employment generation- the company is expected to provide

jobs as show evidence for capacity building, transfer of technology, and
develop local know-how for indigenous employees to boost
entrepreneurship and investment in the economy.

• Value addition- the value addition a business creates in the

production process is measured in granting pioneer status. It involves the
process of transformation of a primary product into finished goods within
the economy without necessarily assembling the goods in Nigeria.

• The NIPC considers the Nigerian local content which focuses on

the promotion of value addition in Nigeria through the use of raw
materials, products, and services in order to encourage the growth of
indigenous capacity, in granting pioneer status.

• The export potential of the business is also taken into consideration

on the belief that the investment will generate an inflow of foreign

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
1
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

exchange into the Nigerian economy before it can qualify for pioneer
status.

• In granting pioneer status, the NIPC will consider the potential of

the company contributing sustainable development e.g. building of
schools, provision of water, electricity, road networks, etc, to the
community in which it is established.

1.3 Procedure for Application for Pioneer Status Incentives (PSI)

The following steps must be taken to apply for pioneer status:

• An applicant must make a written application for pioneer status to

be submitted to the NIPC in the first year of production or service to be
accompanied by evidence of all required legal and regulatory
compliance documentation.

• Request a date to present the project to the NIPC covering

company overview, project overview, project impact, financial analysis,
etc.

• Provide a project profile, indicating pioneer industry/product,

share capital, and non-tangible current assets.

• NIPC provides feedback and requests payment of application and

due diligence fees within a week.

1. Application fee: N200,000

2. Due diligence fee: N500,000

• Once the applicant pays the prescribed fees, the next step is to
submit Part 1 of the application form to the Executive Secretary of NIPC
with supporting documents.

• NIPC reviews the application and performs legal, regulatory, and

compliance checks and after review, NIPC requests a date for the
verification visit.

• After a verification visit has been conducted, NIPC makes a

decision on the application and notifies the company of its decision, and
requests payment of service charge deposit of N2,500,000 within a week.

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
2
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

• Upon payment of the service charge deposit to the NIPC, the NIPC
issues an Approval in Principle to the company.

• The applicant is also to complete the Part II application form and

submit same to the Industrial Inspectorate Department (IID).

• The IID reviews the application for completeness and requests an

inspection visit to determine production day.

• Upon determination of a project's production day, the IID will issue

a Production Day Certificate to the applicant and notifies the NIPC of
the issuance.

• Finally, upon receipt of the copy of the production day certificate

from the IID, the NIPC will issue a Pioneer Status Incentive Certificate to
the applicant and sends a copy to the FIRS and the IID. The Pioneer
Certificate will state the period of which the pioneer status incentive is
valid and Annual service charge of 1% of actual pioneer profits will be
paid.

Note that to qualify for this tax incentive (pioneer status), a joint venture
or wholly foreign-owned company and an indigenous company must
have a non-current tangible asset of over N100,000,000 (One Hundred
Million Naira).

1.4 Submission of annual performance report

This report is to be submitted not later than June 30 of the following

calendar year. The report shall provide actual audited financial
information and the following:

i. Formal covering letter to the Executive Secretary of NIPC;

ii. Company and project information (if different);

iii. Production and financial performance;

iv. Number of employees and emolument;

v. Training cost;

vi. Skills and technology transfer;

vii. Raw materials and components;

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
3
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

viii. Export earnings and destinations;

ix. Infrastructure developed;

x. Environmental, social and governance projects;

xi. Utilisation of tax savings

Implications of non-submission of annual performance report include:

(i) Cancellation of PSI certificate;

(ii) Removal of the company’s name from the list of beneficiaries (posted
on NIPC website); and

(iii) Notification to FIRS for collection of tax for the unexpired period as
well as the period for which the report was not submitted.

1.5 Issuance of certificates

The certificates that will be issued to a company with a qualifying project

are as follows:

(i) Production day certificate

After the determination of a project’s production day by IID, it will issue

a production day certificate to the company. A duplicate copy of the
certificate will be sent to the company and request for the company to
elect to receive the original copy of the certificate by courier or to
collect it in person.

(ii) Pioneer certificate

When a copy of the production day certificate from IID is received by

the company, NIPC will issue a pioneer certificate to the company and
request for the company to elect to receive the original copy of the
certificate by courier or to collect it in person. The pioneer certificate will
state the period over which the pioneer status incentives (PSI) is valid.

1.6 Cancellation of pioneer certificate

The pioneer certificate issued to any company can be cancelled if:

a. Where the production day is extended for more than one year later
than the date stated in the company’s original application for a pioneer

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
4
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

certificate. However, the Council will not cancel the certificate for this
reason if it is satisfied that the delay is due to causes outside the control
of the company or to other good and sufficient cause;

b. Where the values of the qualifying capital expenditure as on the

production day is less than the prescribed minimum value applicable to
the company;

c. The pioneer company concerned applies for the cancellation of the

certificate

d. A pioneer company has contravened any other provision of the IDA

or has failed to fulfill any estimate or proposal made in its application for
a pioneer certificate or any of the conditions contained in its pioneer
certificate; and

e. A pioneer company fails to submit the annual performance report for

any year, shall result in the PSI certificate being cancelled; removal of
the company’s name from the list of beneficiaries (posted on NIPC
website); and notification to FIRS for collection of tax for the unexpired
period as well as the period for which the report was not submitted.

Effective date of cancellation of the pioneer certificate

The effective date of cancellation of a pioneer certificate of a company

shall be:

(i) the pioneer date if the pioneer company has been in operation for
less than one year after the pioneer date; and

(ii) the date of the last anniversary of the pioneer date if the pioneer
company has been in operation for not less than one year after the
pioneer date.

The pioneer date is the date from which a pioneer certificate takes
effect.

1.7 Conditions for extension of pioneer period

The conditions for the extension of a pioneer status are:

(a) The application must be in writing addressed to the Nigerian

Investment Promotion Commission (NIPC);

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
5
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

(b) The application must reach the NIPC not later than one month after
the expiration of the initial tax relief period;

(c) The particulars of all capital expenditure incurred by the company

by that date must be stated;

(d) The NIPC must be satisfied as to the rate of expansion, standard of

efficiency and the level of development of the company;

(e) The NIPC must also be satisfied as to the use of local raw materials
and the training and development of Nigerian personnel;

(f) The relative importance of the industry in the economy of the nation;
and

(g) The fulfillment of any other condition as may be laid down by the
Minister of Finance.

1.8 Tax incentives available to pioneer industries

These include:

(a) The profit of a pioneer company during the pioneer period is

exempted from tax;

(b) Any amount of loss or net loss incurred by the pioneer company
during pioneer period shall be available for relief against other periods.
Net loss is the aggregate of losses of the pioneer period;

(c) The qualifying capital expenditure incurred during the pioneer period
is not subject to capital allowance computation during the pioneer
period. They are deemed to be incurred on the first day of the post-
pioneer period;

(d) The provision for the commencement of a new business is applied on

the profit of the post-pioneer period in arriving at the assessable profit;
and

(e) Dividend paid out of pioneer profit shall not be chargeable to tax in
the hands of the recipient.

1.9 Commencement and cessation provisions to pre-and post pioneer

period

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
6
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

(a) A trade or business carried on by a company shall be deemed to

have permanently ceased before the production day and ceasation
shall apply to profit arising from the period .

(b) 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.

(c) 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.

(d) The pioneer company shall make up accounts of its old trade or
business for the following:

(i) A period not exceeding one year commencing on its production day;

(ii) Successive periods of one year thereafter; and

(iii) A period not exceeding one year ending at the date when its tax
relief period ends.

(e) 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 opening figures for the accounts of the company’s
new trade or business which is deemed to have commenced
immediately after the company’s tax relief period; and

(f) 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.

1.10 Treatment of losses and capital allowances of pioneer period

(a) Losses

Where the Revenue Service is satisfied that a pioneer company has

incurred a loss in any accounting period within the tax relief period, it
shall issue a certificate to the company accordingly (IDA Section10 (6)).

In determining whether such a loss has been made, the Revenue Service
may in its absolute discretion exclude such sum as may be in excess of

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
7
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

an amount appearing to the Revenue Service to be just and reasonable

in respect of:

(i) Remuneration to directors of the company; and

(ii) Interest, service, agency or other similar charges made by a person

who is a shareholder of the company or by a person controlled by such
shareholder (IDA Section 13(3)).

A net loss incurred by a pioneer company shall be deemed to have

been incurred by the company on the day on which its new trade or
business commences, that is, on the day following the expiry of the tax
relief period (IDA Section 14(3)).

For each accounting period, the Revenue Service shall issue to the
pioneer company a statement showing the amount of the income or
loss for that period.

Net loss means the aggregate of losses incurred during the tax relief
period after deduction of profits, if any, made at any time during that
period.

Any dispute between the Revenue Service and the company with
regards to the statement of income or loss issued by the Revenue Service
shall be subject to objection and appeal in like manner as if such
statement were an assessment under CITA.

(b) Capital allowances

No capital allowance shall be claimed during the pioneer period.

Qualifying capital expenditure incurred prior to or during the pioneer
period shall be brought forward to the new trade or business and shall
be deemed to have been acquired on the first day of the new trade or
business.

1.11 Restriction applicable to pioneer industries

(a) Non-pioneer product during pioneer period

If during the pioneer period, a pioneer company also deals in products

other the pioneer product. any profit derived from such a transaction
cannot be exempted from taxation despite the fact that the transaction
is taking place during the pioneer period. In essence, the tax exemption

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
8
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

period is applicable only to pioneer products for which the pioneer

certificate was originally granted.

(b) Restrictions on dividends distribution and on the granting of loans

(Section 18)

During its tax relief period, a pioneer company shall not:

(i) Make any distribution to its shareholders, by way of dividend or bonus,

in excess of the amount by which the account maintained for the
exempt profits is in credit at the date of such distribution; and

(ii) Grant any loan without first obtaining the consent of the Minister. The
consent of the Minister shall only be given if he is satisfied that the pioneer
company is obtaining adequate security and a reasonable interest for
any such loan.

1.12 List of Pioneer Industries

These are the industries which qualify for PSI. Companies that engage in
any of the industries below may apply for the PSI. Below is an
abbreviated list of applicable subsectors.

Industry Applicable Subsector

Publishing of books; software development; motion

Information and pictures, videos and television production and
communication distribution; music production and distribution; and
telecommunication.

Real Estate Investment Trust; and mortgage backed

Financial Services
securities.

Administrative Business process outsourcing; and transportation

Services (land, water, rail and pipeline).

Trade E-Commerce Services.

Construction and operation of roads, railways,

Construction airports, utility projects, water projects, industrial
projects residential and non-residential building.

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
9
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

Waste
Waste treatment, disposal and material recovery.
Management

Electricity and Electric power generation, transmission and

Gas Supply distribution; and manufacture and distribution of gas.

Agriculture Crop production; livestock; fishing; and forestry

Mining and processing of coal; mining and

Mining and
processing of metal ores; and quarrying and mining
Quarrying
of other minerals

Manufacture of refined petroleum products;

processing and preserving of meat or poultry and its
products, fish, shell fish, fruits, nuts, vegetable, cocoa;
manufacturing of grain mill products, edible oils, diary
products, starch and starch products, sugar, coffee
and tea products, animal feed; manufacturing of
wearing apparel; manufacturing of paper, personal
Manufacturing hygiene products, basic chemicals, fertilizers,
pesticides, agrochemicals and nitrogen compounds;
manufacturing of rubber and plastic products;
manufacturing of electrical equipment and
electronics; manufacturing of basic metal and steel
and fabricated metal products; Manufacture of
motor vehicles and components and other transport
equipment etc.

PRACTICE QUESTION 1

Emene Tiles Limited was granted a Pioneer Certificate with its Production
Day as 1 July, 2018.

The following information has been obtained from its records:

i. Accumulated profit as at 30 June, 2021 4,950,000

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
10
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

ii. Capital expenditure incurred during the Pioneer period as certified

by the FIRS:

Building 2,400,000

Plant and Machinery 2,250,000

Motor Vehicles 1,500,000

Furniture and Fittings 750,000

iii. After the end of the Pioneer period, the company adopted 31
December as its year end and the adjusted profits from the new trade
were:

6 months to 31 December, 2021 1,800,000

Year to 31 December, 2022 2,700,000

You are required to:

Compute the Tax Liabilities of the Company for the relevant Years of
Assessment (15 Marks)

SOLUTION TO QUESTION 1

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
11
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

Emene Tiles Limited

COMPUTATION OF TAX LIABILITY
FOR 2022 AND 2023 YEAR OF ASSESSMENT

YOA- 2022
BASIS PERIOD : 01-07-2021 to 31-12-2021

Adjusted Profit 1,800,000.00

Less Capital Allowance

C/A for the year 3,040,125.00
Relieved (1,800,000.00) (1,800,000.00)
C/A C/F 1,240,125.00

Taxable Profit -

Tax Liability
CIT@30% -
TET @ 2.5% 45,000.00

YOA- 2023
BASIS PERIOD : 01-01-2022 to 31-12-2022

Adjusted Profit 2,700,000.00

Less Capital Allowance

C/A b/f 1,240,125.00
C/A for the year 785,250.00
Relieved (2,025,375.00) (2,025,375.00)
C/A c/f -

Taxable Profit 674,625.00

Tax Liability
CIT@30% 202,387.50
TET @ 2.5% 67,500.00

WORKING NOTES

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
12
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

COMPUTATION OF CAPITAL ALLOWANCE FOR THE RELEVANT YOA

MOTOR FURNITURE
BUILDING P&M VEHICLE S
IA 15% 50% 50% 25%
AA 10% 25% 25% 20%
Inv .A 0% 10% 0% 0% C/A
N N N N N'000
YOA-2023
COST 2,400,000 2,250,000 1,500,000 750,000
IA (360,000) (1,125,000) (750,000) (187,500) 2,422,500
AA (6 Months) (102,000) (140,625) (93,750) (56,250) 392,625
Inv .A 225,000
TWDV 1,938,000 984,375 656,250 506,250 3,040,125
YOA -2024
AA (204,000) (281,250) (187,500) (112,500) 785,250
TWDV 1,734,000 703,125 468,750 393,750

PRACTICE QUESTION 2

Zixony & Co Limited has been operating as a manufacturer of Plastic

Baby Toys for a number of years. In recent years, however, the fortunes
of the Company began to dwindle as a result of the activities of
merchants who import container loads of Toys from the Far East and
dump them in the market at prices below Zixony & Co. Limited‟s cost of
production.

The Company‟s year end has always been 31 December every year. The
management then decided to carry out some modifications to the plant
and machinery and go into the manufacture of a special type of high
pressure pipe for the new industry. The Company then applied for and
was subsequently granted Pioneer Status effective 1 January 2020. The
following information was extracted from the Company‟s records.

Assessable Profit Capital Allowance

N N

For the year ended 2016 475,000 105,000

““““ 2017 206,000 90,250

““““ 2018 (245,000) 80,205

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
13
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

““““ 2019 (601,000) 45,210

““““ 2020 (282,800) 175,250

““““ 2021 (950,000) 120,750

““““ 2022 867,050 108,010

““““ 2024 1,250,000 303,500

““““ 2025 985,600 124,200

An extension of the Initial Pioneer period was neither sought nor granted.
Assume a Tax Rate of 40% for all Tax years.

You are required to:

a. Evaluate the criteria for the grant of Pioneer Status. (5 Marks)

b. Calculate the Tax Liabilities for all the Relevant Years of Assessment.
(15 Marks)

SOLUTION TO QUESTION 2

(a) Criteria for granting Pioneer Status

i. Application for Pioneer Status must be submitted to the Federal

Executive Council

ii. The goods and services are required in public interest

iii. The industry must have favourable prospects of further development

in Nigeria

iv. The goods and services are in existence, but have not been
developed to a state suitable for economic development

v. Goods and Services that qualify for the grant are usually on the Pioneer
list

vi. The industry must give particulars of the assets on which qualifying
capital expenditure will be incurred

vii. State the probable Production Day

vii. Specify the place in which the assets are to be situated

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
14
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

Zixony & Co Limited

COMPUTATION OF TAX LIABILITY
FOR THE RELEVANT YEAR OF ASSESSMENT

PRE PIONEER PERIOD N N

YOA- 2017
BASIS PERIOD : 01-01-2016 to 31-12-2016

Adjusted Profit 475,000.00

Less Capital Allowance
C/A for the year 105,000.00
Relieved (105,000.00) (105,000.00)
C/A c/f -

Taxable Profit 370,000.00

Tax Liability
CIT@40% 148,000.00
TET @ 2% 9,500.00

YOA- 2018
BASIS PERIOD : 01-01-2017 to 31-12-2017
N N
Adjusted Profit 206,000.00
Less Capital Allowance
C/A for the year 90,250.00
Relieved (90,250.00) (90,250.00)
C/A c/f -

Taxable Profit 115,750.00

Tax Liability
CIT@40% 46,300.00
TET @ 2% 4,120.00

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
15
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

YOA- 2019
BASIS PERIOD : 01-01-2018 to 31-12-2019
N N
Adjusted Loss (245,000.00)
Adjusted Loss (601,000.00)
Loss Relieved -
Loss lost (846,000.00)
Assessable Profit -
Less Capital Allowance
C/A for the year 80,205.00
C/A for the year 45,210.00
Relieved - -
C/A Carrybackward (Terminal C/A) 125,415.00

Taxable Profit -

Tax Liability
CIT@40% -
TET @ 2% -

Tax Refund Arising from Captial Allowance carrybackward

YOA- 2018
BASIS PERIOD : 01-01-2017 to 31-12-2017

Taxable Profit 115,750.00

Terminal Capital Allowance 125,415.00
Amount Recouped (115,750.00) (115,750.00)
Unrecouped Terminal C/A 9,665.00

Net Taxable Profit -

CIT Tax Refundable@40% (115,750@40%) 46,300.00

YOA- 2017
BASIS PERIOD : 01-01-2016 to 31-12-2016

Taxable Profit 370,000.00

Terminal Capital Allowance 9,665.00
Amount Recouped (9,665.00) (9,665.00)
Unrecouped Terminal C/A -

Net Taxable Profit 360,335.00

CIT Tax Refundable@40% (9,665@40%) 3,866.00

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
16
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

SUMMARY OF TAX PRE PIONEER PERIOD

YOA CIT CIT REFUND NET CIT TET TOTAL
N N N N N
2017 148,000.00 3,866.00 144,134.00 9,500.00 153,634.00
2018 46,300.00 46,300.00 - 4,120.00 4,120.00
2019 - - - -
194,300.00 50,166.00 144,134.00 13,620.00 157,754.00

ADJUSTED CAPITAL
YEAR PROFIT/(LOSS) ALLOWANCE

N N
2020 (282,800.00) 175,250.00
2021 (950,000.00) 120,750.00
2022 867,050.00 108,010.00
TOTAL (365,750.00) 404,010.00

The total Loss of the pioneer period will be carry forward to post pioneer period
The total capital allowance of the pioneer period will be carry forward to post pioneer period

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
17
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

COMPUTATION OF TAX LIABILITY

FOR THE RELEVANT YEAR OF ASSESSMENT
POST PIONEER PERIOD
N N
YOA- 2025
BASIS PERIOD : 01-01-2024 to 31-12-2024

Adjusted Profit 1,250,000.00

Loss b/f (365,750.00)
Loss Relieved (365,750.00) (365,750.00)
Loss c/f -
Assessable Profit 884,250.00

Less Capital Allowance

C/A b/f 404,010.00
C/A for the year 303,500.00
Relieved (707,510.00) (707,510.00)
C/A c/f -

Taxable Profit 176,740.00

Tax Liability
CIT@40% 70,696.00
TET @ 3% 37,500.00

YOA- 2026
BASIS PERIOD : 01-01-2025 to 31-12-2025
N N
Adjusted Profit 985,600.00
Less Capital Allowance
C/A for the year 124,200.00
Relieved (124,200.00) (124,200.00)
C/A c/f -

Taxable Profit 861,400.00

Tax Liability
CIT@40% 344,560.00
TET @ 3% 29,568.00

PRACTICE QUESTION 3

Broadway Limited was Incorporated on 31 May 2014, as a manufacturer

of Plastic products. Four of the Shareholders of the Company who are

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
18
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

Lebanese, decided to invest substantially, with the aim of becoming

members of the Board of Directors. The promoters decided to apply for
a Pioneer Status within the provisions of the Industrial Development
(Income Tax Relief) Act, Cap. 17, LFN 2004. The Company was granted
a Pioneer Certificate with a Production Day certified as 1 August 2016.

The following information has been extracted from the Company’s

records: N

Net Profit for the Financial Period Ended 31 July 2023 25,005,000

Depreciation 496,435

The Federal Inland Revenue Service certified the following expenditure

up to and including the year ended 31 July 2019:

Industrial Building 6,142,500

Non-Industrial Building 2,990,000

Plant and Machinery 4,631,250

Motor Vehicles 4,062,500

The Promoters of Broadway Limited have declined to apply for the

extension of the Pioneer period. You are required to: Advise the
Management on the tax implications for the relevant years of
assessment. (15 Marks)

SOLUTION TO QUESTION 3

November 18 2024

The Managing Director

Broad Way Limited - Lagos

Dear Sir,

RE: ADVICE ON PIONEER STATUS

We refer to your request on the subject and will like to comment as

follows:

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
19
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

➢ With the certification of August 1 2016 as the Production day and

there being no extension, the Pioneer period shall be from August
1 2016 to 31 July 2019.

➢ Profit made during the Pioneer period is exempted from tax and
Loss made during the Pioneer period can be carried to Post-
Pioneer period

➢ Qualifying Capital Expenditure acquired during Pioneer period are

eligible for Capital Allowance after the Pioneer period

➢ The Post Pioneer business is deemed to have commenced

immediately after the Pioneer period. Therefore, commencement
rule is applied to determine the Assessable Profit

➢ As a manufacturing company, there is no restriction of Capital

Allowance

➢ Based on the information provided and applying Commencement

Rules, Tertiary Education Tax is payable on the Assessable Profit for
the 2021, 2022,2023 and 2024 Tax years

➢ After absorbing the Capital Allowances, there is an Income Tax

liability of N282,140 in 2024 Tax Year.

Please note that the Tax authority will carry out a Post-Pioneer audit
period of the company. The FIRS is also required to certify the Qualifying
Capital Expenditure acquired during the Pioneer period.

Please revert to us for further clarifications as may be required.

Yours faithfully,

Jokotola Albert

FOR: AAA & CO

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
20
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

Broadway Limited
COMPUTATION OF TAX LIABILITY
FOR 2023 AND 2024 YEAR OF ASSESSMENT
POST PIONEER PERIOD

YOA- 2021
BASIS PERIOD : 01-08-2019 to 31-07-2020

Adjusted Profit 3,643,062.14

Less Capital Allowance

C/A for the year 8,042,856.25
Relieved (3,643,062.14) (3,643,062.14)
C/A C/F 4,399,794.11

Taxable Profit -

Tax Liability
CIT@30% -
TET @ 2% 72,861.24

YOA- 2022
BASIS PERIOD : 01-08-2020 to 31-07-2021

Adjusted Profit 3,643,062.14

Less Capital Allowance

C/A b/f 4,399,794.11
C/A for the year 1,862,981.25
Relieved (3,643,062.14) (3,643,062.14)
C/A c/f 2,619,713.21

Taxable Profit -

Tax Liability
CIT@30% -
TET @ 2.5% 91,076.55

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
21
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

YOA- 2023
BASIS PERIOD : 01-08-2021 to 31-07-2022

Adjusted Profit 3,643,062.14

Less Capital Allowance

C/A b/f 2,619,713.21
C/A for the year 1,862,981.25
Relieved (3,643,062.14) (3,643,062.14)
C/A c/f 839,632.32

Taxable Profit -

Tax Liability
CIT@30% -
TET @ 2.5% 91,076.55

YOA- 2024
BASIS PERIOD : 01-08-2022 to 31-07-2023

Adjusted Profit 3,643,062.14

Less Capital Allowance

C/A b/f 839,632.32
C/A for the year 1,862,961.25
Relieved (2,702,593.57) (2,702,593.57)
C/A c/f -

Taxable Profit 940,468.57

Tax Liability
CIT@30% 282,140.57
TET @ 3% 109,291.86

Working Notes
Computation of Adjusted Profit N
Net Profit 25,005,000.00
Depreciation 496,435.00
Adjusted Profit 25,501,435.00

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
22
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

PIONEER PROFIT
ADJUSTED
YEAR PROFIT/(LOSS)
N
2017 3,643,062.14
2018 3,643,062.14
2019 3,643,062.14
TOTAL PROFIT 10,929,186.43

The total profit arising from pioneer period will be exempted from Tax

COMPUTATION OF CAPITAL ALLOWANCE FOR THE RELEVANT YOA

IND NON IND MOTOR
BUILDING BUILDING P&M VEHICLE
IA 15% 15% 50% 50%
AA 10% 10% 25% 25%
Inv .A 0% 0% 10% 0% C/A
N N N N N
YOA-2021
COST 6,142,500 2,990,000 4,631,250 4,062,500
IA (921,375) (448,500) (2,315,625) (2,031,250) 5,716,750
AA (522,113) (254,150) (578,906) (507,813) 1,862,981
Inv .A 463,125
TWDV 4,699,013 2,287,350 1,736,719 1,523,438 8,042,856
YOA -2022
AA (522,113) (254,150) (578,906) (507,813) 1,862,981
TWDV 4,176,900 2,033,200 1,157,813 1,015,625
YOA -2023
AA (522,113) (254,150) (578,906) (507,813) 1,862,981
TWDV 3,654,788 1,779,050 578,906 507,813
YOA -2024
AA (522,113) (254,150) (578,896) (507,803) 1,862,961
TWDV 3,132,675 1,524,900 10 10

PRACTICE QUESTION 4

The Industrial Development (Income Tax Relief) Act, Cap. 17, LFN 2004
makes provision for tax reliefs for certain companies that have been
issued with pioneer certificates. In order to take advantage of the tax
incentive, Solid Rock Cement Limited was incorporated on October 1,
2014, to manufacture cement and was granted a pioneer certificate for
three years with its production day certified as January 1, 2017. At the
end of the pioneer period, the company continued in business and
adopted September 30, as its year-end.

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
23
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

You have been provided with the following information:

N’000

(a) Accumulated losses as at 31/12/2019 300,000

(b)Adjusted profits for the 9 months ended 30/9/2020 102,000

(c) Adjusted profits for the 12 months ended 30/9/2021 1,080,000 and
year ended 30/9/2022 1,250,000

(d) Capital expenditure incurred during the pioneer period:

N,000

Buildings 850,000

Plant and Machinery 700,000

Motor vehicles 750,000

Furniture 250,000

All the capital expenditure and the losses were certified by the Federal
Inland Revenue Service (FIRS).

During the pioneer period, the company imported the same product for
which it was granted pioneer status and made profits of N900,000,000
and N800,000,000 for the years ended December 31, 2018 and 2019.

Required:

As the tax consultant to the company, you are to advise the

management of the company on the tax implications for the relevant
years of assessment.

Rates of capital allowances applicable:

Initial Allowance Annual Allowance

% %

Building 15 10

Plant and Machinery 50 25

Motor Vehicle 50 25

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
24
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

Ignore investment allowance. (15 Marks)

SOLUTION TO QUESTION 4

BDI & Co Tax Consultants

24, Ikorodu Road

P. O. Box 540

Marine

Lagos.

January 12, 2020

The Managing Director

Solid Rock Cement Limited

Ikorodu

Dear Sir,

RE: ADVICE ON TAX IMPLICATIONS OF PIONEER PERIOD AND POST

PIONEER PERIOD

In response to your request on the above subject matter, we wish to

advise you as follows:

(a) The pioneer period lasted for three years from 01/01/2017 (date of
certification of the production day) to 31/12/2019 since there was no
extension of the period;

(b) Profits made during the pioneer period from a pioneer enterprise
(manufacturing of cement) are exempted from tax, while the profits
made from the importation of cement (profits from non-pioneer
enterprise) are taxable;

(c) The net loss incurred during the pioneer period and certified by FIRS
is available for relief in computing the total profits of the new trade or
business after the pioneer period;

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
25
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

(d) The qualifying capital expenditure incurred during the pioneer period
as certified by the FIRS is deemed to have been incurred on the day
following the end of the tax relief period, 1/1/2020 and capital
allowances are granted with effect from that date;

(e) The company is deemed to have ceased its old trade or business on
31/12/2019 and to have commenced a new trade or business on
01/01/2020. The commencement provisions are therefore, applied in
ascertaining the assessable profits for 2020, 2021 and 2022 years of
assessment;

(f) The company is a manufacturing company, therefore there is no

restriction on the amount of capital allowances claimable in a year of
assessment provided there is sufficient assessable profit to absorb the
capital allowances.

(g) Based on the information extracted from the company’s records and
applying the relevant provisions of the industrial development (Income
Tax Relief) Act, Cap. 17 LFN 2004, the Companies Income Tax Act. Cap.
C 21, LFN 2004 and the Tertiary Education Trust Fund (Establishment etc)
Act, 2011, the company’s tax liabilities are us presented below:

YEAR OF
ASSESSMENT CIT TET

N,000 N,000

2019 270,000.00 18,000.00

2020 240,000.00 16,000.00

2021 - 2,040.00

2022 - 27,000.00

2023 125,025.00 31,250.00

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
26
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

All the relevant computations are shown in the appendix. Please feel
free to contact us should you require further clarification or assistance.

Yours faithfully,

For: BDI & Co. (Tax Consultants)

Amina Kama

Managing Partner

Appendix

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
27
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

COMPUTATION OF TAX LIABILITY

FOR 2021 TO 2023 YEAR OF ASSESSMENT
POST PIONEER PERIOD

YOA- 2021
BASIS PERIOD : 01-01-2020 to 30-09-2020
N,000
Adjusted Profit 102,000.00
Loss b/f (300,000.00)
Loss Relieved (102,000.00) (102,000.00)
Loss c/f (198,000.00)
Assessable Profit -

Less Capital Allowance

C/A b/f -
C/A for the year 1,133,250.00
Relieved - -
C/A c/f 1,133,250.00

Taxable Profit -

Tax Liability
CIT@30% -
TET @ 2% 2,040.00

YOA- 2022
BASIS PERIOD : 01-10-2020 to 30-09-2021
N,000
Adjusted Profit 1,080,000.00
Loss b/f (198,000.00)
Loss Relieved (198,000.00) (198,000.00)
Loss c/f -
Assessable Profit 882,000.00

Less Capital Allowance

C/A b/f 1,133,250.00
C/A for the year 291,000.00
Relieved (882,000.00) (882,000.00)
C/A c/f 542,250.00

Taxable Profit -

Tax Liability
CIT@30% -
TET @ 2.5% 27,000.00

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
28
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

YOA- 2023
BASIS PERIOD : 01-10-2021 to 30-09-2022
N,000
Adjusted Profit 1,250,000.00

Less Capital Allowance

C/A b/f 542,250.00
C/A for the year 291,000.00
Relieved (833,250.00) (833,250.00)
C/A c/f -

Taxable Profit 416,750.00

Tax Liability
CIT@30% 125,025.00
TET @ 2.5% 31,250.00

TAX LIABILITY FOR BUSINESS OF NON PIONEER PRODUCTS

YOA -2019 N,000

Adjusted Profit 900,000.00
Less Capital Allowance -
Taxable Profit 900,000.00
Tax Liability
CIT@30% 270,000.00
TET @ 2% 18,000.00

YOA -2020 N,000

Adjusted Profit 800,000.00
Less Capital Allowance -
Taxable Profit 800,000.00
Tax Liability
CIT@30% 240,000.00
TET @ 2% 16,000.00

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
29
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689
 Equity Professional ADV TAX
(Accountancy & Financial Tutors)

COMPUTATION OF CAPITAL ALLOWANCE FOR THE RELEVANT YOA

MOTOR
BUILDING F&F P&M VEHICLE
IA 15% 25% 50% 50%
AA 10% 20% 25% 25%
Inv .A 0% 0% 10% 0% C/A
N,000 N,000 N,000 N,000 N
YOA-2021
COST 850,000 250,000 700,000 750,000
IA (127,500) (62,500) (350,000) (375,000) 915,000
AA (9 Months) (54,188) (28,125) (65,625) (70,313) 218,250
TWDV 668,313 159,375 284,375 304,688 1,133,250
YOA -2022
AA (72,250) (37,500) (87,500) (93,750) 291,000
TWDV 596,063 121,875 196,875 210,938
YOA -2023
AA (72,250) (37,500) (87,500) (93,750) 291,000
TWDV 523,813 84,375 109,375 117,188

Victoria Island Centre Isolo Centre

Address: King’s College Annex, 2/4 Adeyemo Address: Holy Saviour’s College, College Road, By
30
Alakija Street, Victoria Island, Lagos, Nigeria Aiye Bus Stop, Off Aswani-Osolo Road, Isolo, Lagos.
Phone: 0708 086 8079 Phone: 0818 242 9689