Why FG turns down tax holiday request and pioneer status of Flutterwave

Why FG turns down tax holiday request and pioneer status of Flutterwave
Rarzack Olaegbe

By RARZACK OLAEGBE

Holiday refreshes you. It breaks your daily routine. It allows you room to leave your usual chores. It provides you with the time to entertain friends and families. Holidays foster a sense of community and goodwill. It fuels your inner will to re-establish proper perspective. It puts spring in your feet and wings on your mind. It is important. That is why every nation has some. Holiday is a part of the glue that binds people together.

Besides providing common reasons for celebration, it helps you to share a common identity with colleagues and relations. That is why in some firms taking some days off is part of your job description. With holiday, you are relaxed. Without it, you suffer burnout. With it, you are recharged. Without it, you are incoherent. With it, you are happier.

Holidays foster a sense of community and goodwill. It fuels your inner will to re-establish proper perspective.

But I am not sure if Olugbenga Agboola, the chief executive officer of Flutterwave and his team would be happier with the news from the stable of the Federal Government (FG). The news from the corridor of the Nigerian Investment Promotion Commission (NIPC) is not glowing.

The NIPC report on pioneer status incentive (PSI) applications for the first quarter of 2021 has shown that it has rejected applications from 10 companies seeking pioneer status under the industrial development income tax relief Act (IDITRA). The PSI is a tax holiday that grants qualifying industries and products relief from payment of corporate income tax for an initial period of three years. This can be extended for additional one or two years.

According to NIPC, the pioneer industries eligible for this tax incentive include information technology, manufacturing, electricity and gas supply, waste management, construction, trade and administrative services among others. Flutterwave Technology Solutions is among the firms whose tax holiday applications were rejected. FG said the applications of Flutterwave and three other applicants were time barred. This implies that Flutterwave may not have applied for PSI within the stipulated three years. The applications were submitted at a later date.

Application for the pioneer status is expected to be made in the first year of business. Companies seeking to apply must also demonstrate in real terms, tangible impact that their businesses will have on the economy. The businesses must have tangible assets worth at least N100 million.

How did we get here? To recognise the potential of the information technology and by extension fintech sector, the FG announced that the sector qualifies for pioneer status incentives. The NIPC rolled out new guidelines for application to encourage and attract investment into the sector. The sector has been identified as having the greatest potential to impact development and economic growth.

The FG expected the inclusion of software development and e-commerce industries on the pioneer status list to stimulate entrepreneurial drive and emergence of new businesses.  The thinking of the government is that this impact would be felt especially among the youth and that it would assuage some of the challenges plaguing the industry. It is expected that these incentives would encourage foreign investment, bridge local data and technology infrastructure gap, minimise brain drain, create employment opportunities, and enhance digital economy, survival and growth of start-ups.

The sector has witnessed the emergence of companies like Interswitch, Etranzact, SystemSpecs, Mainone, Andela, Flutterwave, Paystack, Social Lender and more. According to the NIPC report, 17 companies received approval-in principle. This means these firms are subject to the payment of application fees. Their applications will be effective after the payment of the fees. In addition, the report further disclosed that there are 33 PSI beneficiaries. The applications of 132 companies are pending.

Well, as it stands, no fintech firm got the PSI. Research has shown that there are no special incentive schemes for investment in fintech specifically. In fintech, small companies tax exemptions are applicable to firms with a turnover of N25 million and below N100 million. These firms are liable to pay companies income tax at the rate of 20 per cent of taxable profits. This is lower than the generally applicable rate of 30 per cent.

On the other hand, the company income tax as amended (CITA) provides that the profits reserved by a company for purposes of research and development are tax deductible, provided such reserves do not exceed 10 per cent of the total assessable profit for the company.

Agboola and his team could be entitled to an all-expense-paid holiday in one of the sun-kissed islands in the Bahamas. Anyway, with or without a tax holiday, you deserve a sumptuous holiday in the sun.

Some other companies that are engaged in the production of pioneer products such as software, e-commerce firms are also entitled to apply for pioneer status. If granted, such companies can enjoy corporate tax relief or holiday for an initial term of three years from the production date of the pioneer company.

This may be extended for another period of one year. This can further be pushed for another one year subject to factors such as the relative importance of national development of the industry and employment generation capacity at the relevant time. Companies under the pioneer status would be exempted from paying the companies income tax, tertiary education tax and withholding tax on the payment of dividends.

Track back to Flutterwave. As a pioneer in the fintech space, had Flutterwave’s application succeeded, Flutterwave would have benefitted from all of these goodies. It would gladden the hearts of the executives and shareholders of Flutterwave. Agboola and his team could be entitled to an all-expense-paid holiday in one of the sun-kissed islands in the Bahamas. Anyway, with or without a tax holiday, you deserve a sumptuous holiday in the sun.

*Olaegbe (psalmsonolaegbe@gmail.com)