Whatever the basis on which the Oil and Gas Free Zone Authority listed ITF as one of the levies or taxes payable in the FTZ, the reality is that the average Nigerian citizen is vulnerable on several fronts in his own country
On the wish list of every taxpayer is to have a tax system that is simple, fair and where the associated consequences of any tax treatment is certain. With Free Zones, there is an expectation that the law will mean what it says in letter and in spirit.
Section 8 of the Oil and Gas Export Free Zone Act (OGEFZA) stipulates, "Approved enterprises operating within the Export Free Zone shall be exempt from all Federal, State and local government taxes, levies and rates". Section 18 of the OGEFZA which sets out the incentives available in free trade zones (FTZs) states emphatically among others that "legislative provisions pertaining to taxes, levies, duties, and foreign exchange regulations shall not apply within the Zone". The OGEFZA provides the regulatory frame work for the designation of FTZs and their administration. The OGEFZA specifically applies to oil and gas companies and operations.
The Industrial Training Fund Act (ITFA) Cap 119 LFN 2007 is one of such legislation which provision should ordinarily not be applicable in the FTZ based on the simple application of the provisions of sections 8 and 18 of the OGEFZA. However, this appears not to be the case.
The Industrial Training Fund (ITF) was established to provide fund for the promotion of and encouragement of skills acquisition in Nigeria with a view to having enough indigenous trained manpower to meet the needs of industries for the growth of the economy while providing jobs and creating wealth.
The confusion as to the applicability of ITF Levy in the FTZ is reinforced by the 2011 amendment. Section 6 (3) of the ITFA 2011 states as follows:
"Any liable organization, public or private including companies situate in the free trade zone requiring approval for expatriate quota/or utilizing custom services in matters of export and import, must show proof of compliance with this Act in respect of payment of training contribution of his employees and all regulatory agencies of the Federal Government shall ensure compliance with section 6 (1) – (3) of this Act"
However, Regulation 3(8) of the Oil and Gas Free Zone Regulations 2003 ("the Regulation") provides that foreign staff employed by registered enterprise shall not be liable to immigration quota system. Further, Regulation 3(5) states that a registered enterprise shall not require import and export license to bring in goods into the free zone. Where an entity's operation is fully (100%) in the free zone and consequently would not require approval for expatriate quota or import and export licenses, is it safe to assume that ITFA will not apply and as such FZE will not be required to deduct ITF?
The word 'levies' used in S.8(1) in the Principal ITF Act was replaced with 'contribution' in the Amendment Act. Does this subtle change affect the impact? Does it mean that approved free zone enterprises (FZEs) will be exempted from taxes and levies and not contributions?
In 2015, the Oil and Gas Free Zone Authority issued a public notice to the effect that they have set up a tax administration unit. Consequently, with effect from January 2015, all free zone licensees were prohibited from having any direct interface with the Revenue authorities without reference to the authority. However, the authority seem to have tacitly acknowledged the fact that licensees may be subject to ITF when it listed ITF as one of the taxes payable by licensees in the FTZ.
Prior to the amendment in 2011, the Minister of Trade and Investment was vested with the power to determine the liability of an employer to pay contributions to the fund but in the Amendment Act, the Court is now vested with this power. This is significant, in that a purely administrative process has been converted to a judicial process. Thus, a FZE that holds the view that ITF should not be applicable may have no other option than a recourse to the Courts for relief. A more appropriate approach would be to evaluate this ambiguity and eliminate it via appropriate clarification. This promotes certainty and saves the taxpayers (in this case the FZEs) avoidable professional costs on lawyers and tax advisers as well as administrative time that could be put to other more productive endeavours in the business of the FZEs.
In conclusion, whatever the basis on which the Oil and Gas Free Zone Authority listed ITF as one of the levies or taxes payable in the FTZ, the reality is that the average Nigerian citizen is vulnerable on several fronts in his own country. Available evidence have not reinforced sufficient assurance that the various agencies and parastatals of government are really busy looking (or would look) after him. This remains the crux of the dilemma whether or not ITF should apply in the FTZ. Perhaps, it is because of considerations such as this that FTZs in Nigeria have presented a Jekyll and Hyde profile and have not granted absolute exemptions.
To the extent that contributions to ITF are geared towards encouraging and promoting skills acquisition in commerce and industry in a bid to create a pool of trained manpower necessary to meet the needs of the economy, no sector of the economy should enjoy exemption from this important responsibility.
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