Nigeria is implementing a new Infrastructure Tax Credit Scheme ( the “Scheme”) for private companies, special purpose infrastructure funds and institutional investors (“Participants“). The new tax credit scheme is contained in the Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme Order 2019 No: 007 of 2019″ (“the Order”). The Order establishes a Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme Management Committee, ( the “Committee”) led by the Minister of Finance and the Minister of Works and with the responsibility for administering the infrastructure tax credit scheme. The Scheme has a sunset date of January 24, 2029.
How Would it Work?
Participants are expected to fund the construction or refurbishment of roads that are designated by the Committee as “Eligible Roads”. In exchange, a Participant would be entitled to infrastructure tax credits equal to the costs (the “Project Cost”) incurred by the Participant in constructing or refurbishing an Eligible Road. The infrastructure tax credit is done by setting-off the Project Cost against the Companies Income Tax (CIT) payable by a Participant until full cost recovery is achieved and as from the financial year in which the Project Cost is incurred.
Participants will also be entitled to a single uplift equivalent to the prevailing Central Bank Monetary Policy Rate plus 2% of the Project Cost. This uplift will not constitute taxable income in the hands of a Participant. However, Participants will no longer be entitled to any other tax credit, capital allowance or relief on the Project Cost incurred in respect of an Eligible Road. Additionally, Participants who decide to act in concert to fund the construction of an Eligible Road will be separately entitled to a Tax Credit in proportion to its financial contribution. It is useful to note that the amount of infrastructure tax credit to be utilized in any given year is limited to 50% of the CIT payable by a Participant in that financial year. However, infrastructure tax credits in respect of Eligible Roads in areas designated as Economically Disadvantaged Areas are not subject to any caps.
“Project Cost” is defined to include the actual cost of road construction and/or refurbishment and also professional fees payable to lawyers, fund managers, or other consultants to the extent that expenses incurred in respect thereof are wholly, reasonably, exclusively and necessarily incurred for the purpose of constructing or refurbishing an Eligible Road. As a line item of the Project Cost, professional fees are capped at 1.25% of the Project Cost for projects over N10 billion.
To become an eligible Participant, promoters are to submit a written application to the Committee. Amongst others, an application will include a valid Tax Clearance Certificate (TCC) issued by the FIRS; latest audited financial statements of corporate sponsors; and information on design, specification, project cost and timelines for constructing or refurbishing an Eligible Road.
Successful Participants are to apply to the Federal Inland Revenue Service for a certificate referred to as the Road Infrastructure Tax Credit Certificate ( ” Tax Credit Certificate”) annually. Amongst others, a Tax Credit Certificate will specify the relevant Project Cost, the amount of the said uplift and the amount of the infrastructure tax credit due to a Participant. Upon issue, the Tax Credit Certificate becomes valid for utilisation against a Participant’s CIT liability in the financial year in which the Project Cost is incurred. However, Participants must apply to the FIRS to claim an infrastructure tax credit as applicable infrastructure tax credits are not automatically applicable. Participants can also bring forward an unutilized infrastructure tax credit.
Tradeability of Tax Credit Certificates
The Order permits Participants to trade their Tax Credit Certificates. However, Participants must obtain the approval of the Committee. Tax Credit Certificate can be traded on over-the-counter markets like the FMDQ.
As of date, some of the Participants in Scheme, include Dangote cement Plc, GZI industries, Transcorp Group, Access Bank, GZI Industries, BUA, and the NLNG. It has been reported that a tax credit certificate worth N22.3 billion was awarded to Dangote to construct the Apapa-Oworonshoki-Ojota road in Lagos and the Lokoja-Obajana-Kabba road connecting Kogi and Kwara States.
Updated July 1, 2022
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