Ayorinde & Co (Chartered Accountants)

Kabba Road, Lokoja

INTERNAL MEMO

Date: …….

From: Manager (Corporate Tax Matters) To: Principal Partner

Subject: RE: Possession and Purchase of Minerals and Tax Incentives available to Pioneer Industries and Related Matters

I refer to our client’s request on procedures for possession and purchase of minerals; incentives available to pioneer industries; treatment of losses and capital allowances of pioneer period; and restriction applicable to pioneer industries. I hereby present a report for your review before the same is presented to the client.

a. Possession and purchase of minerals in accordance with the provisions of the Principal Act

Section 93 of the Nigerian Minerals and Mining Act 2007 provides that no person, other than an officer of the Ministry authorised in that behalf by the Minister and acting in the execution of his duty, shall possess any mineral unless:

i. the mineral is won from a mineral title area of which the person is the holder and which entitles him to explore and exploit the minerals; or

ii. the person holds a permit to possess or purchase that mineral issued under the provisions of the Act; or

iii. the person is in respect of that mineral within the meaning of regulations made under the Act, a duly authorised agent or employee of any person permitted by paragraphs (i) and (ii) above to possess the mineral.

Purchase of minerals; Section 94 provides that no person shall purchase any mineral unless he holds a licence to purchase minerals issued under this Act.

b. Tax incentives available to pioneer industries

i. The profit of a pioneer company during the pioneer period is exempted from tax;

ii. 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;

iii. 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;

iv. 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

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

c. Treatment of losses and capital allowances of pioneer period Losses (i) 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 Section 10 (6)).

(ii) 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 an amount appearing to the Revenue Service to be just and reasonable in respect of:

 remuneration to directors of the company; and

 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)).

(iii) 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)).

(iv) 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.

(v) 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 in assessment under CITA.

Capital allowances

(i) No capital allowance shall be claimed during the pioneer period.

(ii) 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.

d. Restrictions applicable to pioneer industries

i. Non-pioneer product during pioneer period: If during the pioneer period, a pioneer company deals in products other than 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 period is applicable only to pioneer products for which the pioneer certificate was originally granted; and

ii. Restrictions on dividends distribution and on the granting of loans (Section 18): During its tax relief period, a pioneer company shall not:

 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

 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.

Thank you.

Tobi Babatolu