The fog of uncertainty is gathering momentum over the delicate, yet controversial topic of Pioneer Status Incentive (PSI1) and "mature industries". The topic like a double-edged sword, one minute an investment promotion tool and the next, a revenue leakage tool, has been making headlines recently. This is due to the announcements of plans by the Federal Government to phase out PSI for mature industries under the 2022 Finance Act.

The Federal Government (FG) has in four (4) successive years enacted Finance Acts to complement the budget, achieve its fiscal plans and align domestic tax laws with global best practice and economic realities. The 2023 Appropriation Act was signed into law on 3 January 2023, while the Finance Bill is pending assent by the President after its passage by the National Assembly.

In the draft versions of the Finance Bill that were publicly available, the focus on incentives was fiscal policies to eliminate perceived antiquated and redundant tax incentives, such as rural investment allowance, reconstruction investment allowance, and income in convertible currencies. This is expected to propel the FG's transition away from expensive and redundant tax incentives to incentives that reward performance.

Curiously, there was no indication of phasing out PSI or amendments to the Industrial Development (Income Tax) Relief Act, 1971 (IDA), the legislative framework for PSI in the draft Bills. Nonetheless, the Honorable Minister of Finance, Budget and National Planning during her public presentation of the 2023 Appropriation Act reiterated the planned phasing out of pioneer status for "mature industries", while the focus will be on incentives for "infant industries" in the future.

Indeed, the country is at crossroads and in dire need of additional revenue amid an enormous budget deficit of N11.34 trillion. Crucial to note is the significant gradual swing in the pendulum of the FG's revenue ratio, with 78% to be earned from non-oil sources and 22% from oil sources in 2023. As the reverse was the historic order, the FG will continue to mobilize efforts towards accelerating the tax revenue base.

Pioneer Status Incentive's Legislative and Regulatory Framework

Indeed, there is a valid motivation for the periodic review of incentives and waivers, including PSI, as aptly highlighted in the body of legislative and regulatory framework supporting the incentive, such as the IDA, the Nigerian Investment Promotion Commission (NIPC) Act (CAP.N117 LFN 2004), PSI Regulations, No.6 2014, and Application Guidelines for PSI, Gazette No.89 Volume 104, 2017, (AGPSI).

It is on this basis that periodic reviews, impact assessments and cost-benefit analysis are expected to be carried out by the NIPC. Pioneer companies are also expected to submit an annual performance report for the purpose of monitoring.

Notwithstanding the above, incentives continue to play a key role in stimulating foreign direct investment (FDI) which in turn has a multiplier effect on the economy. For this purpose, the IDA grants the President the discretion to declare an industry or product as pioneer if:

  1. it is not being carried on in Nigeria on a scale suitable to the economic requirements of Nigeria or at all, or there are favourable prospects of further development in Nigeria; or
  2. it is expedient in the public interest to encourage the development or establishment of such industry in Nigeria.

The IDA also grants the President the power to amend the list of pioneer industries and products on any ground which appears sufficient to him. In addition, the AGPSI invites stakeholders to submit suggestions to the NIPC at any time for additions to, or deletion from the pioneer list, supported by succinct rationale.

The Federal Executive Council (FEC), under the delegated authority of the President, in August 2017 issued the new list of pioneer industries and products, which included 27 additions. The government must be lauded as the list signaled a clear reckoning for economic inclusion and diversification as documented in the government's economic recovery growth plan now transitioned to the national development plan.

The manufacture of clinker and cement was deleted in August 2017 and became effective in August 2021 after one year extension.

The pioneer list ignited renewed investor's confidence as the business community received the list with enthusiasm due to the time lag from the administrative suspension of the scheme in September 2015. The suspension paved the way for a comprehensive review and reform aimed at increasing transparency, process efficiency, enhanced articulation of the expected economic benefits.

In addition to the new pioneer list issued by FEC, the administrative review culminated in the issuance of the AGPSI in August 2017 by the then Honourable Minister of Industry, Trade and Investment in exercise of powers conferred on him by the IDA.

One of the initiatives from the review is that additions approved by FEC under the delegated authority of the President should become effective immediately after approval, while deletions approved by FEC should become effective three years after approval (i.e., the sunset period) as documented in the AGPSI. This was implemented with the deletion of the manufacture of clinker and cement from the pioneer list in August 2017.

Why Government Should Implement the Three-year (3) Year Sunset period

The crux of the matter is how the government should terminate PSI for the mature pioneer industries and products, especially considering the three-year (3) sunset clause in the AGPSI. If this will be through Finance Act, 2022, it is incumbent on the government to follow due process by implementing the sunset period for the following reasons:

(1) Compliance with Applicable Regulation

This would be in alignment with the legal and regulatory clause prescribed in the AGPSI. A departure from this will be arbitrary and lead to erosion of public confidence.

(2) Legitimate Expectation

The doctrine of legitimate expectation gives a party reasonable expectation of being treated in a certain way by public authorities based on historic consistent practice, or an express promise made by the public authority.

The doctrine provides a ground for judicial review in administrative law to protect a procedural or substantive interest when a public authority reneges from a representation made to a person. This lends credence to the ability of a party to credibly argue for equity and fairness under the protection of the doctrine. In this case, the unambiguous clause in the AGPSI reinforced by the precedent established in the cement sector provides the basis for a legitimate expectation.

Once the doctrine is breached, parties may seek recourse in the court of law as seen in Kenya Airways Limited (KAL) vs Federal Inland Revenue Service (FIRS) where the Tax Appeal Tribunal upheld KAL's position that additional income tax assessments for 2009 to 2014 tax years should be based on 2% of its turnover, in line with the established practice of the FIRS for that period. The TAT's decision was underscored by the doctrine of legitimate expectation.

On this basis, it is the legitimate expectation of the public that the FG will apply the sunset provisions set out in the AGPSI.

(3) Level Playing Field

Closely linked to the above, the implementation of the sunset clause will create a level playing field since the clause was implemented for the deletion of the cement sector from the pioneer list. The precedent set with the cement sector clearly reinforces the importance of the clause as it enabled a seamless transition and avoided the truncation of pending PSI applications at the time.

(4) Need for a Seamless Transition

The importance of transitional and sunset provisions in fiscal matters cannot be over-emphasized as sudden and abrupt changes in the law or policy will send rippling shock waves of instability and uncertainty. This can have far-reaching consequences on businesses, investors, and the economy at large.

(5) Global Best Practice

An overarching issue that investors are highly sensitive to is uncertainty, instability in policies and laws and non-adherence to laws as this is detrimental to planning in an already volatile climate.

It is therefore expected that government will implement the sunset clause as documented in the AGPSI. This is consistent with global best practice as sunset provisions are a critical feature of the tax code on incentives. A report on efficient and effective use of tax incentives by the joint working group of the IMF, OECD, UN and World Bank states:

"...When reforming tax incentives, governments should seek a balance between tax stability for incumbents and equal treatment of entrants to the market. Sunset provisions are often provided when incentives are scaled back due to policy reform" 2.

There may also be other advantages to be harnessed from a sunset provision as quoted below from an excerpt in the report:

"Indeed, when foreseen to be phased out in the near future, the investment effects of an incentive tend to be bigger than of permanent incentives (US Department of Treasury, 2010). Sunset provisions should be built into the law".

A deviation from global best practice on sunset provisions could have a detrimental effect on stability and certainty for taxpayers who embark on actions with hopes of clarity on the legal implications of their actions.

Based on the above, as the FG plans to phase out mature industries from the pioneer list through the Finance Act, 2022, it is expedient that it implements the three-year (3) sunset clause provided for in the AGPSI. There should also be more transparency on the basis for determination of mature pioneer industries.

Balance between Budgetary Pressure and Review of PSI

Indeed, Nigeria's burgeoning debt profile is a cause for concern especially in the context of relatively low revenue and a daunting budget deficit. Interestingly, escalated debt burden is currently a global threat as many countries are drifting towards a debt crisis amid rising inflation and interest rates. Nigeria's debt crisis is amplified by the significant budget deficit. Notwithstanding the budgetary pressures, the proposed phasing out of mature industries should be looked at holistically and within the ambit of the law.

Ceteris Paribus, with hopes of a seamless government transition in May 2023, Nigeria may be on the radar for FDI, as opportunities for investment in the country are limitless, despite the challenges.

Nigeria must therefore project itself favorably as a viable and business friendly investment destination. FDI has the potential to significantly stimulate and reflate the economy. Key factors that influence investment decisions include market size, natural resources, and political stability, stable fx regime, skilled labour, costs, security etc. Incentives also play a key role in influencing FDI but must be monitored to ensure its effectiveness and impact.

According to a presentation made by the NIPC in 2018, investor feedback included "government policy flip flop, changing rules without notice". At a time when Nigeria is in copious need of investment, it is important to reinforce factors such as stability of policies, certainty, transparency, and adherence to the rule of law. This will facilitate the ease of doing business and in turn FDI.


The global economy is in a flux induced in no small measure by the Russia-Ukraine conflict which has activated a chain reaction of economic shocks. Nigeria is not immune to and is, indeed, exposed to global shocks constraining the business environment.

As the storm of an economic recession brews, it may be possible to avert the looming crises if the government proactively implements policies that will accelerate the ease of doing business in Nigeria. The ripple effect of a thriving private sector supported by enabling policies can be a game changer.


1. PSI is a tax holiday that grants eligible companies tax relief from the payment of corporate income tax for an initial period of three (3) years, renewable for an additional period of one (1) or two (2) years.

2. Options for Low Income Countries__Effective and Efficient Use of Tax Incentives for Investment.docx (

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