The federal government says plans are afoot to introduce a new scheme, known as the Economic Development Incentive (EDI), which will address long-standing inefficiencies in the current Pioneer Status Incentive (PSI).
The proposed investment-driven incentive framework is designed to stimulate real economic activity by tying tax relief directly to verifiable investments and part of the country’s ongoing tax reform efforts.
Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, disclosed this in a keynote address at BusinessDay’s Policy Intervention Series held on April 22 in Lagos.
He said a review of the PSI revealed structural flaws that have undermined its effectiveness.
According to him, “Once granted Pioneer Status, companies may import goods classified as ‘pioneer products’ tax-free, effectively allowing them to operate without tax obligations—even with minimal value addition to the economy.”
Oyedele further noted that while the PSI was initially designed to encourage investment, it created loopholes and ambiguities, pointing out that businesses often benefit from extended tax relief even after the designated holiday period ends.
“The assets used during the Pioneer period are essentially frozen in time. They’re treated as if acquired after the incentive ends—meaning companies only start claiming deductions once the holiday period is over. This creates long-term tax advantages that go well beyond the policy’s original intent,” the committee chairman added.
Oyedele also noted that the PSI makes it difficult for the government to quantify revenue forgone and for investors to clearly assess the value of the incentive—undermining transparency on both sides.
According to him, the proposed EDI is a departure from the one-size-fits-all model but structured around priority sectors—primarily manufacturing, followed by services and infrastructure—that have strong multiplier effects on the economy.
Another key design feature is the introduction of minimum investment thresholds to ensure only scalable and impactful projects qualify. Companies operating in capital-intensive sectors like utilities would need to invest at least N200 billion to be eligible for the tax credit.
“The EDI is about real impact. It’s time-bound, sector-targeted, and tied to actual capital deployment—not just approval on paper,” Oyedele added.
Explaining the working of the initiative, he pointed out that unlike blanket tax holidays, the EDI grants companies a 5 per cent annual tax credit over five years—totalling 25 per cent of the value of their qualifying investment. Importantly, this is in addition to existing capital allowances, making the scheme particularly attractive to long-term investors.
He added that most importantly, approval under the scheme does not mean the investment has already been made but only confirms that the company has a verified plan and the incentive kicks in only after capital is actually deployed, and all investments are subject to inspection by the Industrial Inspectorate Division.
Continuing, he explained that if a company invests N10 billion in Year 1, it earns a N500 million tax credit each year for five years and if an additional N5 billion is invested in Year 2, that new investment begins its own five-year 5 per cent cycle—N250 million annually until Year 6 and if the company continues investing progressively, each round of investment starts a new five-year cycle of tax credits, potentially extending the benefit period up to 10 years.
He further stated that if a business has a N15 million tax liability in a given year and applies N25 million in tax credits, its liability is wiped out entirely, with the N10 million balance rolled over to subsequent years and that if a company fails to follow through on its investment plan or halts capital deployment, unused credits are forfeited and this accountability mechanism ensures that only consistent and credible investments are rewarded.
