The Lagos Chamber of Commerce and Industry (LCCI) has advocated for a phased implementation of the proposed tax reforms for Free Trade Zones (FTZs) in Nigeria. This approach, according to LCCI Director-General Dr. Chinyere Almona, would allow businesses adequate time to adapt to the changes, mitigating potential disruptions. The reforms, which have sparked debate within the private sector, seek to clarify the tax status of FTZ enterprises selling goods and services into the Nigerian market, rather than revoke existing incentives. The LCCI emphasizes the importance of stakeholder engagement to ensure a clear understanding of the reforms’ objectives and dispel misconceptions about the reversal of incentives. While acknowledging the concerns raised about potential investment and job losses, the LCCI stresses that the reforms aim to establish a level playing field for businesses operating both within and outside FTZs, ensuring fair competition and preventing revenue leakage.
The LCCI’s position underscores the importance of balancing fiscal incentives with other crucial factors that influence investment decisions, including infrastructure development, regulatory efficiency, and market access. While fiscal incentives are undeniably attractive to businesses, the LCCI argues that a holistic approach to investment promotion is essential for long-term economic growth. The proposed reforms, according to the LCCI, do not eliminate the core benefits of operating within FTZs, particularly for export-oriented businesses. Dr. Almona clarified that FTZ operations geared towards exports will remain tax-free, and only sales into the domestic market will be subject to taxation, in line with global best practices. This clarification aims to address concerns about the perceived erosion of FTZ advantages.
The debate surrounding the reforms highlights a crucial need for tax equity and alignment of Nigeria’s FTZ policies with international standards, according to the LCCI. Dr. Almona contends that the reforms, which seek to tax goods and services sold from FTZs into the domestic market, ensure a fair competitive landscape for all businesses operating within Nigeria. This approach addresses the potential for unfair advantages enjoyed by FTZ enterprises selling into the domestic market without contributing to the national tax base. The LCCI argues that this level playing field is essential for sustainable economic growth and fosters healthy competition. The LCCI further asserts that Nigeria’s FTZ policies remain competitive compared to other African economies, citing Ghana’s stricter regulations on local sales from FTZs as a comparative example.
The LCCI maintains that the proposed reforms are not a departure from the original intent of the Nigeria Export Processing Zones Act of 1992, but rather a clarification of its provisions. This Act, according to Dr. Almona, permits sales into the customs territory but does not exempt such transactions from taxation. By explicitly stating the tax obligations for domestic sales from FTZs, the reforms aim to address ambiguities and prevent revenue loss. This clarification, the LCCI emphasizes, is crucial for maintaining fiscal integrity and ensuring compliance with existing legal frameworks. The LCCI’s stance reinforces the importance of adhering to established regulations and aligning current practices with the original legislative intent.
To mitigate potential negative impacts and ensure a smooth transition, the LCCI urges the government to adopt a phased implementation strategy, coupled with supportive measures to bolster investor confidence. These measures include infrastructural improvements, streamlining ease of doing business processes, and simplifying tax administration. A phased approach, the LCCI argues, would provide businesses with the necessary time to adjust their operations and explore alternative strategies, such as focusing on export markets. Furthermore, the LCCI suggests that the government could introduce non-fiscal incentives, like enhanced infrastructure and streamlined regulatory processes, to offset the impact of the tax reforms and maintain Nigeria’s attractiveness as an investment destination.
The LCCI’s recommendations highlight the need for a comprehensive and balanced approach to FTZ reform. While acknowledging the importance of fiscal adjustments, the LCCI stresses the need for complementary measures to maintain investor confidence and stimulate economic activity. By focusing on improving the overall business environment, including infrastructure, regulatory efficiency, and administrative processes, the government can create a more conducive climate for investment and economic growth, even with the implementation of new tax regulations. This multifaceted approach, according to the LCCI, is essential for navigating the complexities of economic reform and achieving sustainable development objectives. The LCCI’s perspective echoes the views expressed by the Manufacturers Association of Nigeria (MAN), which also supports the proposed reforms while emphasizing the need for a fair and equitable tax system for all businesses operating in Nigeria. This alignment between key industry stakeholders suggests a growing consensus on the need for reform and the importance of a balanced approach to implementation.
