CONTINUED FROM LAST WEEK
In order to accelerate Nigeria’s economic development, a number of laws have been enacted with a view to attracting and giving incentive to foreign investors who, for the reason~ which we have copiously advanced, are able to exploit the resources ofthe country more efficiently and effective than Nigerians themselves.
Nigeria has the Industrial Development (Income Tax Relief) Act. This law, which was passed in 1958, provides a tax-holiday to pioneer industries for an original period of up to five years according to the capital invested in fixed assets, with provision for an extension of the period for each year of the original period in which a loss is sustained. Losses may also be carried forward to be offset against tax liability after the expiry of the tax-holiday. A pioneer industry is one which either is not at present being carried on in Nigeria or is not being conducted on a commercial scale suitable to the economic requirements of the development of Nigeria. In order to qualify as a pioneer enterprise, a company must, in addition to satisfying the above requirements, be incorporated in Nigeria and be a public company.
Nigeria has the Income Tax (Amendment) Act which has as its object the granting to companies of a very much quicker write-down of their capital assets in the early years of trading, so as to enable the company to amortise its capital assets in its formative years, and to build up liquid reserves at an early date. The initial capital percentage for the write-down of capital assets in the case of machinery is 40. This is in addition to the ordinary annual write-down `of 5-15%. Thus in the first taxable year of its existence, a company would be enabled to write off from profits, for the purposes of computing taxable income, some 50% of the capital value of the machinery employed by it. Where the taxable income of a company does not absorb the full capital allowances claimed, the unabsorbed balance will be carried forward indefinitely against future taxable profits. Unabsorbed losses may be similarly carried forward against future taxable profits. These benefits accrue to all companies, both public and private, which operate in Nigeria, whether incorporated in Nigeria or overseas, and they are not confined to companies engaged in pioneer industries. Where a company receives a pioneer certificate, the write-down of capital assets herein described can be claimed in toto at the end of the tax-free holiday.
Nigeria also has the Industrial Development (Import Duty Relief) Act which provides for the repayment, wholly or in part, of amoun , rs paid in customs duty on materials of capital equipment import ed for the use of Nigerian industries, where such repayment wou Id be to the country’s overall economic advantage. This Act als 0 makes provision for the repayment, wholly or in part, of duty pai .d on components imported for assembly into finished articles, an d the Nigerian Government may enter into agreement with th e recipients of any repayment, guaranteeing the continuance of repayments for periods up to ten years. 1 In addition to these concrete financial inducements, the Federal and Regional Governments of Nigeria made a declaration of policy in 1958 which, till today, remains the Code of Conduct by which the existing Federal and State Governments are guided in their dealings with foreign investors.
The declaration of policy reads as follows:
‘Profits and dividends arising from sterling or non-sterling capital investment in approved projects may be freely transferred to the country of origin and such capital may be repatriated at will.
Nigeria is a member of the Sterling Area and there is no reason to A anticipate any change in this situation. ‘Our Governments have no plans for nationalizing industry beyond the extent to which public utilities are already nationalized, nor do they foresee any such proposals arising. Nevertheless they are anxious that there should be no doubt in the minds of overseas entrepreneurs that Nigeria will provide adequate safeguards for the interests of investors in the event of any industry being nationalized in the future. Should this occur, then fair compensation, assessed by independent arbitration, would be paid.’
As a result of all these incentives, a good number of foreign-owned pioneer industries have sprung up in Nigeria – there were 110 of them by 1967 – most of which make large profits; indeed some of them make fantastic profits, which are tax-free. Recently, because of the present emergency in the country, it became necessary to tax, in the current 1968/69 fiscal year only, those of these industries whose profits exceed £5,000 in one year, on the understanding that the pioneer periods of the affected companies will be extended for another year. The tax yield is estimated at £2m.
The economic subservience ofNigeria is conspicuously evident from, and indisputably established by, the foregoing facts which we have marshalled in support of its economic underdevelopment.
None the less,for the purpose of emphasis only, we would like to make one or two relevant observations. Only an infinitesimal proportion of all of Nigeria’s export products are consumed locally. The masses of Nigerians are too poor to consume the end-products to which these export crops are put. Consequently, in regard to these primary products, we are completely at the mercy of foreign consumers. When this unique peculiarity (which economists refer to as monopsony) of our export produce is coupled with the high inelasticity of its supply, and when it is recalled that these products constitute 73% of Nigeria’s total exports which since 1960 have proved insufficient to pay for our imports, the total dependence of Nigeria’s economy on foreign countries needs no further elaboration.
Business enterprises, industrial ventures, and mining activities in Nigeria are dominated by foreign investors.
CONTINUES NEXT WEEK
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