Adjusting the tax incentive system in Nigeria: Shifting from Performance-Based Support Instruments to Empowerment and Digital Transformation Incentives

Nigeria Transforms Tax Incentive Regulation, Aims for Trillion-Dollar GDP

In a significant move towards economic transformation, Nigeria has introduced the Economic Development Tax Incentive (EDTI) under the Nigeria Tax Act 2025. This new incentive replaces the Pioneer Status Incentive (PSI) and marks a shift towards a performance-based system, moving away from tax holidays.

The PSI, which exempted designated companies from Companies Income Tax (CIT) for three years, extendable by two more years, applied only to qualifying industries and activities listed on the Pioneer List. The NIPC, responsible for administering the PSI, was tasked with reviewing and updating the Pioneer List every two years through publication in the Federal Gazette.

Under the EDTI, eligible companies will receive tax credits equal to 5% of their Qualifying Capital Expenditure (QCE), granted annually for five years. The QCE thresholds for the EDTI are codified in law, typically ranging from ₦250 million to ₦200 billion by sector.

The EDTI establishes a more transparent, rules-based, and performance-driven framework compared to the PSI. It prohibits firms from combining the incentive with other tax holidays, such as Free Zone exemptions. This move is aimed at enhancing accountability and reducing administrative discretion.

The role of the NIPC shifts from being a process-stage administrator to becoming a regulatory enforcer under the EDTI. They are now responsible for ensuring applications are filed before production commences, enforcing strict QCE certification, conducting independent post-approval audits, and monitoring compliance with stronger anti-abuse rules and detailed filing obligations.

The EDTI covers priority areas such as manufacturing, agriculture, mining, renewables, and ICT. This transformation is part of Nigeria's broader commitment to institutionalising accountability, enhancing business environment governance, and aligning incentives with measurable economic development outcomes.

Since independence, Nigeria has aspired to industrialize and position itself among the world's top 20 industrialized economies. The country is transforming from a mono-product, import-dependent economy into a competitive contributor to global value chains. The EDTI is a significant step towards achieving this goal, as it reflects Nigeria's commitment to economic growth and development.

However, the effective date of the amendment of the tax incentive regulation in Nigeria, which abolished the PSI and introduced the EDTI under sections 166-183 of the Nigeria Tax Act 2025, is not currently available in the search results.

The Nigeria Tax Act 2025 consolidates the country's disparate tax laws, providing a more coherent administrative framework for tax collection and management. This is overseen by the Nigeria Revenue Service Act, 2025.

In 2026, the IDITRA will be repealed. The specifics of this legislation are yet to be fully understood, but it is expected to further streamline Nigeria's tax system and contribute to the country's economic growth and development.

As Nigeria moves forward with these changes, it remains committed to achieving a one-trillion-dollar GDP, positioning itself as a major player in the global economy.

Adjusting the tax incentive system in Nigeria: Shifting from Performance-Based Support Instruments to Empowerment and Digital Transformation Incentives