With the available incentives, President Bola Tinubu’s administration and players in the sector can drive growth in Nigeria’s power sector and tackle the country’s most significant and pressing challenges, Partners and Heads of Energy Line of Business (Audit)KPMG Nigeria have revealed.
The monthly report of the KPMG’s power sector advisory department, seen by EnergyDay on Thursday.
The KPMG’s experts in the report emphasised that the benefits of tax incentives can never be overemphasized given their ability to revive, rehabilitate and stabilize key sectors of the economy.
According to them, the success of these incentives lies in their adaptation for the peculiarities of the industries for which they are targeted and in their implementation.
The report emphasised that a more focused understanding and implementation of the available incentives in Nigeria’s power sector will go a long way in driving the growth and development required in the sector.
The expert, however, observed that the sector requires more than what is available to achieve its growth potential, but the available ones must be fully explored.
The report said, ” The commercial framework for the sector has however remained an issue. Although Nigeria’s power sector has continued to grow even though some may argue that the rate of growth is still below the required level. The commercial framework can be addressed with more incentives that operators believe may impact and aid growth. ”
KPMG, therefore, highlighted some of the available incentives to include Value Added Tax(VAT) exemptions on goods and importation of equipment.
The report said, “The Federal Government of Nigeria published the Value Added Tax (Modification Order) in its Official Gazette No. 167, Vol.108 of 21 September 2021 (‘the Order).
“The 2021 Order, which had a commencement date of 30 July 2022, was issued by Mrs. Zainab Ahmed, Nigeria’s former Minister of Finance, Budget and National Planning, in pursuant to the powers of the Minister under Section 38 of the Value Added Tax (VAT) Act, Cap V1, Laws of the Federation of Nigeria, 2004 (as amended).
“The Order introduced exemptions for various products and goods relating to the power sector, including, Gas supplied by gas-producing companies to electricity generating companies (GENCOs); electricity generated by GENCOs and supplied to the national grid or Nigeria Bulk Electricity Trading Company (NBET) and Electricity transmitted by Transmission Company of Nigeria (TCN) to electricity distribution companies (DISCOs) and importation of renewable energy equipment (REE),” the report said.
The KPMG’s report also encouraged the private sector players to take advantage of the Companies Income Tax(CIT) Act which specifies some Withholding tax (WHT) reliefs available on interest on foreign loans, depending on the loan term and grace period for repayment of principal and interest.
According to the experts, the WHT reliefs, which is focused on the loan provider as a means of encouraging foreign lenders to provide funds to local businesses, exempt a portion of interest income accruing to the lender from income tax.
They emphasised that under Nigerian tax laws, WHT on interest income is the final tax on interest earned by a foreign lender.
KPMG’s experts also urge the private sector players to leverage on the Pioneer Status Incentive (PSI), which according to them, promotes investment and development of sectors that are deemed critical to economic development in Nigeria.
The report said, “It is a profit-based tax incentive, governed by the Industrial Development (Income Tax Relief) Act, Cap. 17 Laws of the Federation of Nigeria, 2004.
“The incentive grants qualifying businesses in pioneer industries an income tax holiday for a maximum period of 5 years, an initial 3 years which can be extended for another 2 years based on performance and compliance with key business case strategies.”
The report emphasised that the PSI allows beneficiary companies to reinvest the money that may have been applied toward the payment of income tax during the holiday period to grow the size of their business and improve operational efficiency.
Another major incentive available, based on the findings of the KPMG’s report, is the Gas Utilization Incentive (GUI), which defines gas utilization as the marketing and distribution of natural gas for commercial purposes, and it includes power plants, fertilizer plants, gas transmission, and distribution pipelines.
The report said, “Section 39(1)(a) of the CIT Act grants tax incentives to companies engaged in the trade or business of gas utilization in downstream operations. The Act defines gas utilization as the marketing and distribution of natural gas for commercial purposes, and it includes power plants, fertilizer plants, gas transmission, and distribution pipelines.”
The KPMG experts however urged the Government to provide clarity to the operational process for obtaining and renewing the GUI, adding that the implementation of the incentives has been a major concern to the private sector players.