Market News
OPS fears $200bn investment loss over FTZs tax - PUNCH
BY Arinze Nwafor, Sami Tunji and Josephine Ogundeji
Members of the Organised Private Sector have warned that the country risks losing $200bn investment and 600,000 jobs as a result of the Federal Government’s plan to increase taxes on Free Trade Zones.
The Chairman of the Organised Private Sector of Nigeria, Dele Oye, noted in a statement that the decision by the Presidential Committee on Fiscal Policy and Tax Reforms to introduce minimum tax rates and remove long-standing tax exemptions for businesses operating within Free Trade Zones was contradicting Nigeria’s industrialisation and investment objectives.
Oye who is also the President of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, remarked that the proposed amendments, particularly Sections 57, 60, 198(2), and 198(3), threaten to dismantle key incentives sustaining FTZ investments since the Nigeria Export Processing Zones Act introduced the scheme in 1992.
Oye said, “Stripping away established tax exemptions is a drastic measure that will diminish investor confidence and jeopardise Nigeria’s standing in the global investment community.”
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The OPSN chairman explained that businesses operating in the FTZs, enabled by special tax incentives, have significantly contributed to the country’s economic development, attracting investment, promoting job creation, and fostering industrialisation.
He added that Sections 8 and 18 of the NEPZA Act exempted approved enterprises from all Federal, State, and Government taxes, creating an attractive investment environment.
The Chairman of the Fiscal Policy and Tax Reform Committee, Taiwo Oyedele, speaking on a panel at the 3rd Nigerian Economic Zones Association conference held in Lagos on February 20, 2025, noted that the Federal Government was considering a “top-up tax” mechanism to ensure Nigeria retains its fair share of corporate taxation.
The PUNCH reported that Oyedele called for urgent policy updates, arguing that the NEPZA Act 1992 no longer aligns with modern economic realities as he explained that under initial plans, Free Zone businesses exporting up to 25 per cent of their goods to Nigeria’s Customs Territory would be taxed, while those exceeding this threshold would pay tax on all their sales.
Oydele added that after engaging stakeholders, the proposal was revised to exempt 100 per cent of exporters from taxation while FTZ businesses selling in Nigeria would be taxed only on domestic sales.
The NACCIMA president decried Oyedele’s submissions, insisting they directly contradict the framework of incentivising industrialisation by introducing minimum tax rates and eliminating existing exemptions that have been instrumental in attracting investments.
He declared that private-sector investments developed 48 out of Nigeria’s 50 FTZ and the tax exemptions within these zones have been crucial in attracting investors, creating jobs, and generating over N650bn in government revenue through customs duties and related economic activities.
Meanwhile, Oye accused the Oyedele-led tax reform committee of not consulting with key stakeholders before the reforms were announced. He lamented that the FTZ businesses may relocate to other countries because of a lack of incentives.
He stated: “The FTZs association and companies were not formally consulted before 20th February 202(5), when the Chairman of the Fiscal policies and tax committee, Mr Taiwo Oyedele, who as a panelist at the 3rd Nigerian Economic Zones Association conference informed the FTZ community of the intended substantial amendment of the rules and laws regulating investment in the FTZ.
“The provisions of the Nigeria Tax Bill 2024 could trigger capital flight, as companies may relocate to neighbouring markets like Ghana and Angola, which boast friendlier investment climates. According to historical data compiled by the NEPZA and the Oil and Gas Export Free Zone Authority, Nigeria has seen over N650bn generated for the government from these zones through various channels, including customs duties. The removal of established tax benefits will not only halt this revenue stream but also have severe economic repercussions for the nation.”
Oye highlighted accomplishments within the Lagos Free Zone with its Lekki Deep Sea Port as some of the reasons for maintaining incentivised FTZs.
“For example, the proposed amendments to the NEPZA Act threaten the incentives that led to the successful establishment of notable Free Zones such as the Lagos Free Zone, where the Lekki Deep Sea Port operates as a vital maritime hub,” the NACCIMA president noted. “The port’s recent achievements, including the docking of the largest container vessel in Nigerian history, underline the need to maintain an environment conducive to further investment and growth.
“Moreover, by compromising the FTZ incentives, Nigeria would likely fail to meet its broader economic diversification agenda. The FTZs not only stimulate job creation but also reinforce Nigeria’s position as a competitive player in the global market. In comparison, other nations such as the UAE offer zero corporate tax rates and robust support to ensure businesses thrive within their FTZs, presenting Nigeria with a clear example of what could be lost if these changes are implemented.”
Oye called on the National Assembly to review the proposed tax bills, emphasising the need for policies that encourage long-term investment rather than deter it, noting “As NACCIMA, we urge the National Assembly to reassess the implications of the proposed Nigeria Tax Bill 2024 on the Free Trade Zone Scheme.
“The bill represents a potential policy shift that could undermine decades of progress in attracting Foreign Direct Investment and cultivating a dynamic, diversified economy. Protecting Nigeria’s FTZ framework is not just about retaining tax incentives, it’s about ensuring sustained economic growth, and job creation, and enhancing Nigeria’s competitiveness on the global stage.
“We can see a major loss of investment, litigation, and several arbitrations between the Nigerian entities and their partners, banks, and government agencies like the Nigerian Investment Promotion Commission, who in the discharge of their duties may have granted several incentives, to induce the investment.
“While not asking the government to completely reverse the vehicle, the government can also delay the application of the proposed amendments, to enable the investors to recoup their investments, and set a new financial and business model. This policy summerault through legislation is bound to shake everything Nigeria if not carefully handled, as it has already slowed down activities in the FTZs, while potential new investments are held.”
CPPE, others react
Similarly, the Director of the Centre for Promotion of Private Enterprise, Dr Muda Yusuf, denounced the FTZs tax review as a disincentive and unfair to the business operating in the FTZs.
“Free trade zone investments are industrial investments which one cannot move easily,” Yusuf stated. “It is not fair to them that they invested based on a particular set of rules and after they have invested – some of them, hundreds of millions of dollars worth – you are now changing the rules.
Yusuf concluded the tax reform committee’s plans are not good for investment and will hurt investors’ confidence. “It is not a good thing for an investment. It is not a good look for the country and investor confidence. If you set up a rule and incentives and somebody comes in to change the incentives it has a long-term reputation risk,” the CPPE director maintained.
According to Yusuf, free trade zone investors have a tax incentive which has enabled the country to attract a lot of investment. He acknowledged that the idea behind FTZs is to have businesses which are “essentially export-focused.”
He explained that the idea behind the Oyedele-led tax reform committee’s bills is to raise the threshold for FTZ businesses who are not fully export-focused and not a general tax imposition on all FTZ businesses.
“I think what the bill is saying is that if a particular percentage of their product is being sold in the domestic market, then it will begin to attract taxes. I think that is what the law says and not about every (FTZ),” Yusuf explained. “It was a question of threshold or the percentage of product. I think the percentage used to be much higher, maybe 60 per cent or so.
“Now the new bill is reducing the percentage to 25 per cent because if it is more than that, then the company will have to be paying taxes. This is because FTZs are designed essentially for export; the point that is being made is for those who are not exporting as much as they should.”
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However, Yusuf expressed doubt as to the utility of the proposed tax bills since there was already a provision to address FTZs that sell to the domestic market, noting “The law says that if you produce and export to the domestic market, which they call the Customs Territory, you will pay tax as if you are importing it. So there is already a provision to take care of that (in the NEPZA Act).
“If you are producing and are not exporting, and you now decide to sell to the domestic market, you will now pay tax as if you are importing the product. So that has been taken care of. But in addition to that (earlier provision), the new bill is now saying that they have to pay corporate tax or something which will be a major disincentive to investors in the free zone.
Yusuf reiterated that the bills will be a major disincentive to investors in the FTZs “because when somebody has invested based on particular parameters, then you change the rule, it is not a very good thing.”
He urged deliberations and more advocacy, stating “It is different if you give them notice for five years or so. But once these things are passed, they become law immediately, whereas these people (FTZ businesses) have invested based on existing law. These are some of the challenges concerning the tax bills.
“If the (businesses in the FTZs) make a very strong case to the National Assembly, that section may be deleted or modified. Members of the National Assembly) are the lawmakers and what the Tax Reform Committee submitted is just a bill. And they must agree with the contents of the bill for it to become law. If they do not agree with the contents it cannot become law. They will go clause by clause and decide whether the argument is strong enough to tinker with that aspect of the provision.”
The National President of the Association of Small Business Owners of Nigeria, Dr Femi Egbesola, said imposing taxes on businesses operating within the free zones could be counterproductive and might be perceived as a breach of the agreement made to investors.
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“If the Nigerian government believes it is not generating adequate revenue, there are several proven models that could be explored without altering the operational terms of the free zones. One effective approach is to promote forward and backward integration, ensuring that businesses within the zones source raw materials locally and establish linkages with domestic industries.
“Another viable strategy is to enhance contract manufacturing activities, allowing local firms to participate in the production process while benefiting from the zones’ incentives. The government can also explore service levies, infrastructure contributions, or public-private partnership models that ensure businesses contribute to economic growth without direct taxation.
“Timelines should also be given to businesses before eventual implementation of new policies, to give way to proper planning and fairness,” he stated.
A member of the Nigerian Economic Summit Group, Dr Ikenna Nwosu, said the plan to tax the free trade zones needed to be clarified, stressing companies operating in the FTZs should not be taxed.
“Is the Federal Government planning to tax the free trade zone operator, or the companies operating in the free trade zones? For sure, companies operating in.the free trade zones cannot be taxed, as that is a major hallmark of Free Trade Zones all over the world. Free Trade Zones are regarded as foreign countries,” he stated.
FTZs tax
The proposed amendments in the Nigeria Tax Bill 2024 introduce significant changes to the tax treatment of FTZ enterprises, particularly restricting tax exemptions to businesses that exclusively export their goods and services.
Under Section 60 of the bill, entities licensed to operate in FTZs will only be fully exempt from taxation if at least 100 per cent of their revenue is derived from exports.
If more than 25 per cent of their sales occur within Nigeria’s customs territory, they will lose all tax reliefs and be subjected to full taxation.
The Nigeria Tax Bill 2024 document read in part, “This schedule applies to the export processing and free trade zones, (the zones) and approved export processing and free trade zone entities, (the entities).
“In this Schedule, “export processing and free trade zone entities” has the same meaning as that ascribed to it in the Nigeria Export Processing Zones Act and Oil and Gas Free Zones Authority Act.
“Subject to paragraph 4 of this Schedule and the provisions of section 57 of this Act, the profits of an entity licensed to operate in a relevant zone are fully exempt from tax where not less than 100 per cent of its sales arise from the export of goods or services produced by such entity, or serve as inputs into goods or services exclusively for export.
“Where at least 75 per cent of goods or services produced by a licensed entity in a year of assessment is exported, or serve as inputs into goods or services, at least 75 per cent of which are exported, tax shall accrue proportionately on the profits of the entity in that year of assessment in respect of goods or services sold within the customs territory.
“Where, in a year of assessment, more than 25 per cent of the sales of a licensed entity occur in the customs territory, the whole profits of the entity shall be taxed in Nigeria and all other reliefs granted under this Act and the law of the relevant zone shall not apply.
The bill further noted that licensed entities within Free Trade Zones are required to comply with the Nigeria Tax Administration Act, including registration, tax return filings, and tax deductions at source.
If an FTZ entity outsources manufacturing to a related company outside the zone, the revenue from such sales will be considered income of the non-FTZ company, unless proven to be conducted at arm’s length.
Similarly, when a non-FTZ company provides non-manufacturing services to a related FTZ entity, the Transfer Pricing Regulations will govern the transaction.
Also, services rendered to FTZ entities by providers in the customs territory or services consumed within the customs territory are subject to applicable transaction taxes.
This provision is seen as a fundamental shift from the long-standing policies that have governed FTZs since the enactment of the Nigeria Export Processing Zones Act in 1992.
Previously, FTZ operators enjoyed broad tax exemptions to attract foreign direct investment and stimulate industrial development.
Section 198(2) of the bill takes this further by deleting Sections 8 and 18(1)(a) of the Nigeria Export Processing Zones Act, effectively removing key legal protections that exempt FTZ enterprises from taxation.
Similarly, Section 198(3) targets the Oil and Gas Free Trade Zone Act, deleting critical provisions that have ensured tax-free operations for entities in Nigeria’s oil and gas free zones.
