𝐅𝐀𝐐𝐬 𝐎𝐍 𝐅𝐑𝐄𝐄 𝐙𝐎𝐍𝐄𝐒 𝐓𝐀𝐗 𝐑𝐄𝐅𝐎𝐑𝐌 𝐐1 - 𝐖𝐡𝐲 𝐢𝐬 𝐭𝐡𝐞 𝐠𝐨𝐯𝐞𝐫𝐧𝐦𝐞𝐧𝐭 𝐬𝐞𝐞𝐤𝐢𝐧𝐠 𝐭𝐨 𝐚𝐦𝐞𝐧𝐝 𝐭𝐡𝐞 𝐭𝐚𝐱 𝐢𝐧𝐜𝐞𝐧𝐭𝐢𝐯𝐞𝐬 𝐚𝐯𝐚𝐢𝐥𝐚𝐛𝐥𝐞 𝐭𝐨 𝐟𝐫𝐞𝐞 𝐳𝐨𝐧𝐞 𝐞𝐧𝐭𝐢𝐭𝐢𝐞𝐬 𝐚𝐬 𝐩𝐚𝐫𝐭 𝐨𝐟 𝐭𝐡𝐞 𝐭𝐚𝐱 𝐫𝐞𝐟𝐨𝐫𝐦 𝐛𝐢𝐥𝐥𝐬? A1 - The tax bills are part of the comprehensive reform of the tax system. The key objectives include harmonisation of tax rules, rationalisation of tax incentives, and addressing distortions or impediments to business growth. In this regard, all relevant tax laws, tax policies, regulations and incentive regimes including the free zones are under review. 𝐐2 - 𝐀𝐫𝐞 𝐟𝐫𝐞𝐞 𝐭𝐫𝐚𝐝𝐞 𝐳𝐨𝐧𝐞𝐬 𝐧𝐨𝐭 𝐦𝐞𝐚𝐧𝐭 𝐭𝐨 𝐛𝐞 𝐭𝐚𝐱 𝐟𝐫𝐞𝐞, 𝐰𝐡𝐚𝐭 𝐰𝐢𝐥𝐥 𝐜𝐡𝐚𝐧𝐠𝐞? A2 - Approved enterprises are exempt from all taxes on their approved activities within the zones and with respect to exports. The Nigeria 𝐄𝐱𝐩𝐨𝐫𝐭 Processing Zones and the Oil & Gas 𝐄𝐱𝐩𝐨𝐫𝐭 Free Trade Zones were established to promote exports. This is clear from the enabling laws and as contained in the Third Schedule to the NEPZA Act where the first approved activity is stated as “𝘮𝘢𝘯𝘶𝘧𝘢𝘤𝘵𝘶𝘳𝘪𝘯𝘨 𝘰𝘧 𝘨𝘰𝘰𝘥𝘴 𝘧𝘰𝘳 𝘦𝘹𝘱𝘰𝘳𝘵”. Other approved activities relate to international services, transshipment and services within the zones. For instance, banking is listed as an approved activity but it does not mean that a bank can set up in the zone and render banking services across Nigeria without paying taxes, rather it refers to banking within the zone or for exports. 𝐐3 - 𝐖𝐢𝐥𝐥 𝐭𝐡𝐢𝐬 𝐧𝐨𝐭 𝐚𝐦𝐨𝐮𝐧𝐭 𝐭𝐨 𝐚 𝐫𝐞𝐯𝐞𝐫𝐬𝐚𝐥 𝐨𝐟 𝐭𝐡𝐞 𝐭𝐚𝐱 𝐢𝐧𝐜𝐞𝐧𝐭𝐢𝐯𝐞𝐬 𝐰𝐡𝐢𝐜𝐡 𝐟𝐨𝐫𝐦𝐞𝐝 𝐭𝐡𝐞 𝐛𝐚𝐬𝐢𝐬 𝐟𝐨𝐫 𝐭𝐡𝐞 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭𝐬 𝐦𝐚𝐝𝐞 𝐛𝐲 𝐭𝐡𝐞 𝐚𝐩𝐩𝐫𝐨𝐯𝐞𝐝 𝐞𝐧𝐭𝐞𝐫𝐩𝐫𝐢𝐬𝐞𝐬 𝐭𝐡𝐞𝐫𝐞𝐛𝐲 𝐝𝐢𝐬𝐜𝐨𝐮𝐫𝐚𝐠𝐢𝐧𝐠 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐢𝐧 𝐭𝐡𝐞 𝐳𝐨𝐧𝐞𝐬? A3 - No. Section 8 of the enabling laws covers exemption from taxes as stated below: “𝘈𝘱𝘱𝘳𝘰𝘷𝘦𝘥 𝘦𝘯𝘵𝘦𝘳𝘱𝘳𝘪𝘴𝘦𝘴 𝘰𝘱𝘦𝘳𝘢𝘵𝘪𝘯𝘨 𝐰𝐢𝐭𝐡𝐢𝐧 𝘢 𝘡𝘰𝘯𝘦 𝘴𝘩𝘢𝘭𝘭 𝘣𝘦 𝘦𝘹𝘦𝘮𝘱𝘵𝘦𝘥 𝘧𝘳𝘰𝘮 𝘢𝘭𝘭 𝘍𝘦𝘥𝘦𝘳𝘢𝘭, 𝘚𝘵𝘢𝘵𝘦 𝘢𝘯𝘥 𝘎𝘰𝘷𝘦𝘳𝘯𝘮𝘦𝘯𝘵 𝘵𝘢𝘹𝘦𝘴, 𝘭𝘦𝘷𝘪𝘦𝘴 𝘢𝘯𝘥 𝘳𝘢𝘵𝘦𝘴." Sales to the domestic market (referred to as "customs territory") is neither an approved activity nor is it within the zones. Also, section 18(1)(e) stated below which permits the sale of goods and services to the customs territory does not confer tax exemption. Rather, it is a regulatory concession without which an approved enterprise would be prohibited from selling its goods and services to the customs territory regardless of whether taxes will be paid or not.  "𝘚.18(1)(𝘦) 𝘶𝘱 𝘵𝘰 𝘵𝘸𝘦𝘯𝘵𝘺-𝘧𝘪𝘷𝘦 𝘱𝘦𝘳 𝘤𝘦𝘯𝘵 𝘰𝘧 𝘱𝘳𝘰𝘥𝘶𝘤𝘵𝘪𝘰𝘯 𝘮𝘢𝘺 𝘣𝘦 𝘴𝘰𝘭𝘥 𝘪𝘯 𝘵𝘩𝘦 𝘊𝘶𝘴𝘵𝘰𝘮𝘴 𝘛𝘦𝘳𝘳𝘪𝘵𝘰𝘳𝘺 𝘢𝘨𝘢𝘪𝘯𝘴𝘵 𝘢 𝘷𝘢𝘭𝘪𝘥 𝘱𝘦𝘳𝘮𝘪𝘵 𝘢𝘯𝘥 𝘰𝘯 𝘱𝘢𝘺𝘮𝘦𝘯𝘵 𝘰𝘧 𝘢𝘱𝘱𝘳𝘰𝘱𝘳𝘪𝘢𝘵𝘦 𝘥𝘶𝘵𝘪𝘦𝘴." Over time, the provisions of sections 8 and 18 have been interpreted as not only permitting sales into the customs territory but also conferring tax exemption. This interpretation is inconsistent with the enabling laws and undermines tax-paying entities operating within the customs territory and producing similar goods. The proposed change is therefore not a reversal but a clarification of the existing rules as part of the review, harmonisation and rationalisation of all tax incentives. 𝐐4 - 𝐒𝐨, 𝐰𝐡𝐚𝐭 𝐢𝐬 𝐛𝐞𝐢𝐧𝐠 𝐩𝐫𝐨𝐩𝐨𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐞 𝐫𝐞𝐟𝐨𝐫𝐦𝐬? A4 - The tax reform bills seek to clarify that sales to the customs territory are taxable not just for import duties and VAT but also corporate income tax. This is consistent with the intent and letters of the enabling laws. Approved activities within the zones and exports will continue to be tax-exempt.  𝐐5 - 𝐖𝐡𝐚𝐭 𝐚𝐛𝐨𝐮𝐭 𝐭𝐚𝐱𝐞𝐬 𝐨𝐧 𝐭𝐫𝐚𝐧𝐬𝐚𝐜𝐭𝐢𝐨𝐧𝐬 𝐰𝐢𝐭𝐡 𝐩𝐞𝐫𝐬𝐨𝐧𝐬 𝐰𝐢𝐭𝐡𝐢𝐧 𝐭𝐡𝐞 𝐜𝐮𝐬𝐭𝐨𝐦𝐬 𝐭𝐞𝐫𝐫𝐢𝐭𝐨𝐫𝐲? A5 - VAT is applicable on supplies to a person within the customs territory, which may be self accounted for by the customer. Sales from a person within the customs territory to an approved enterprise within the zone are treated as exports, which is not subject to VAT. Withholding tax is treated between the parties as is the case with foreign customers or suppliers.  Personal income tax is payable by individuals employed within the zone. The free zone tax incentives are targeted at the approved enterprises and not their employees or contractors. 𝐐6 - 𝐈𝐬 𝐭𝐡𝐞𝐫𝐞 𝐚 𝐫𝐢𝐬𝐤 𝐭𝐡𝐚𝐭 𝐬𝐨𝐦𝐞 𝐨𝐟 𝐭𝐡𝐞 𝐢𝐧𝐯𝐞𝐬𝐭𝐨𝐫𝐬 𝐜𝐨𝐮𝐥𝐝 𝐫𝐞𝐥𝐨𝐜𝐚𝐭𝐞 𝐭𝐨 𝐟𝐫𝐞𝐞 𝐳𝐨𝐧𝐞𝐬 𝐢𝐧 𝐧𝐞𝐢𝐠𝐡𝐛𝐨𝐮𝐫𝐢𝐧𝐠 𝐜𝐨𝐮𝐧𝐭𝐫𝐢𝐞𝐬 𝐚𝐧𝐝 𝐞𝐱𝐩𝐨𝐫𝐭 𝐭𝐡𝐞𝐢𝐫 𝐠𝐨𝐨𝐝𝐬 𝐚𝐧𝐝 𝐬𝐞𝐫𝐯𝐢𝐜𝐞𝐬 𝐭𝐨 𝐍𝐢𝐠𝐞𝐫𝐢𝐚 𝐭𝐚𝐱 𝐟𝐫𝐞𝐞? A6 - Our neighbouring countries have similar or even stricter rules. In fact, Nigeria will continue to be more attractive even after the proposed amendments. For instance, Ghana only allows up to 30% sales (Nigeria up to 100%) into the customs territory subject to payment of duties and taxes, including corporate income tax (CIT). Exports by a zone entity are tax-free only for 10 years, after which up to 8% CIT will apply (Nigeria offers indefinite CIT exemption on exports). In Benin Republic, the free trade zone regime provides exemption from most entry duties on production-related items and taxes (including corporate tax) for an operational period of 15 years. After this period, only exemption from customs duties on raw materials will apply, while corporate income tax will be payable at a reduced rate of 15%. Besides, under the AfCFTA and ECOWAS treaties, a country has the scope to deny preferential import duty rates on goods manufactured in a free zone from another country in order to protect its local industry. Hence, Nigeria will be able to impose necessary tariffs on such imports to protect domestic companies producing similar items or substitutes in Nigeria. 𝐐7 - 𝐁𝐮𝐭 𝐭𝐡𝐞 𝐅𝐫𝐞𝐞 𝐙𝐨𝐧𝐞𝐬 𝐀𝐮𝐭𝐡𝐨𝐫𝐢𝐭𝐲 𝐢𝐬 𝐞𝐦𝐩𝐨𝐰𝐞𝐫𝐞𝐝 𝐭𝐨 𝐝𝐞𝐬𝐢𝐠𝐧𝐚𝐭𝐞 𝐚𝐧𝐲 𝐞𝐧𝐭𝐢𝐭𝐲 𝐚𝐬 𝐚𝐧 𝐚𝐩𝐩𝐫𝐨𝐯𝐞𝐝 𝐞𝐧𝐭𝐞𝐫𝐩𝐫𝐢𝐬𝐞 𝐚𝐧𝐝 𝐦𝐚𝐤𝐞 𝐫𝐞𝐠𝐮𝐥𝐚𝐭𝐢𝐨𝐧𝐬 𝐫𝐞𝐠𝐚𝐫𝐝𝐢𝐧𝐠 𝐭𝐡𝐞 𝐚𝐩𝐩𝐫𝐨𝐯𝐞𝐝 𝐚𝐜𝐭𝐢𝐯𝐢𝐭𝐢𝐞𝐬. A7 - The power granted to the zone authority is to make regulations for the proper implementation of the acts, not to amend the enabling laws. Therefore, any regulations made by the authorities must be consistent with the approved activities contained in the relevant laws.  𝐐8 - 𝐒𝐨𝐦𝐞 𝐬𝐭𝐚𝐤𝐞𝐡𝐨𝐥𝐝𝐞𝐫𝐬 𝐡𝐚𝐯𝐞 𝐚𝐥𝐬𝐨 𝐫𝐚𝐢𝐬𝐞𝐝 𝐜𝐨𝐧𝐜𝐞𝐫𝐧𝐬 𝐚𝐛𝐨𝐮𝐭 𝐭𝐡𝐞 𝐦𝐢𝐧𝐢𝐦𝐮𝐦 𝐭𝐚𝐱 𝐫𝐮𝐥𝐞 𝐨𝐟 15% 𝐛𝐞𝐢𝐧𝐠 𝐩𝐫𝐨𝐩𝐨𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐞 𝐭𝐚𝐱 𝐫𝐞𝐟𝐨𝐫𝐦 𝐛𝐢𝐥𝐥𝐬. A8 - The proposed 15% minimum tax is a new development around the world to enable countries to protect their tax bases with over 70 countries already enacting laws in this regard. The minimum tax will not apply to a free zone entity being a member of a multinational group except where the tax, if not collected in Nigeria, will be paid abroad. Nigerian entities operating within the zones will not be subject to the tax on their approved activities.  𝐐9 - 𝐖𝐡𝐚𝐭 𝐢𝐬 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐟𝐨𝐫 𝐭𝐡𝐞 𝐨𝐫𝐝𝐢𝐧𝐚𝐫𝐲 𝐍𝐢𝐠𝐞𝐫𝐢𝐚𝐧? A9 - The proposed reform is aimed at ensuring equitable treatment for all companies in Nigeria whether operating within the domestic market or within the free zones with respect to sales into the customs territory (domestic market). This is in line with the existing laws and global best practices to enable fair competition, protect jobs and preserve our country's tax base necessary to fund infrastructure and social services. -𝘗𝘳𝘦𝘴𝘪𝘥𝘦𝘯𝘵𝘪𝘢𝘭 𝘍𝘪𝘴𝘤𝘢𝘭 𝘗𝘰𝘭𝘪𝘤𝘺 𝘢𝘯𝘥 𝘛𝘢𝘹 𝘙𝘦𝘧𝘰𝘳𝘮𝘴 𝘊𝘰𝘮𝘮𝘪𝘵𝘵𝘦𝘦