Companies operating in Nigeria’s oil and gas sector stand to benefit from tax incentives when they invest in research and development (R&D). The Federal Government has made available several incentives that the companies could take advantage of, declared two agencies of the government, the Nigerian Content Development and Monitoring Board (NCDMB) and the Federal Inland Revenue Service (FIRS).
Engr. Simbi Kesiye Wabote, Executive Secretary of NCDMB, and Mr. Muhammad Nami, Executive Chairman, Federal Inland Revenue Service (FIRS), stated this on Tuesday in Yenagoa, Bayelsa State, at the one-day Nigerian Oil and Gas Industry Suppliers’ Tax Awareness Workshop jointly organised by the two organisations at the NCDMB Conference Hall.
Delivering the keynote address at the event, the Executive Secretary NCDMB stated that the Finance Act 2021 and other extant tax codes relating to Research and Development provide attractive tax incentives for oil and gas firms that invest in R&D.
He hinted that many oil and gas companies were oblivious of the opportunities that exist within Nigerian tax laws for the oil industry to harness from investing in research and development. He reiterated that such workshops provide the necessary education and enlightenment that enable businesses to position themselves appropriately to benefit from making R&D an integral part of their business model.
Tax Deductibles
- Allowable deduction of up to 10 percent of amount of reserve made out of the profits of a period by a company for research and development.
- Claim of capital allowance on capital expenditure on plant and machinery used for R&D activities.
- Pioneer status tax holiday for R&D companies.
- Companies and other organisations that invest in R&D facilities for commercialisation can claim a tax credit of up to 20 percent of the cost of their qualifying expenditures.
He observed that the low level of R&D funding by companies is partly linked to inadequate information. He regretted that “the consequence is not only significant capital flight in the acquisition of technology required for oil and gas projects and operations, but also players in the sector are tied to the apron and direct control of the foreign supply chain who control the technological advances arising from their R&D activities.”
Wabote cited examples of leading Fortune 500 companies that commit between five to 10 percent of their annual budgets to R&D, which enables them to produce innovative products and make significant tax returns, in addition to and creating job opportunities.
Speaking further, the NCDMB boss expressed hope that the workshop will change the gross underfunding of research in Nigeria, which is currently estimated at less than 0.2 percent of the national budget. He insisted that operators can no longer neglect R&D, saying that it is key to local content development, enhancement of future tax revenue to government, development of home-grown solutions and retention of industry spending within Nigerian financial institutions. “Access to the Nigerian Content Intervention Fund by the local supply chain has been one of the major contributors to the growth in local content level from less than five percent in 2010 to 54 percent in 2022.”
He hinted that the Board is “pushing for similar performance in Research and Development by sharpening our focus on the various elements that will enable the growth and appreciable impact of research and development in our economy.” The Executive Secretary identified funding as one of the key pillars of R&D, and that informed the launch of the US$50million Nigerian Content Research & Development Fund to drive strategic programmes and developments in the R&D ecosystem.
The NCDMB boss, however, insisted government should not be the sole financier of R&D, pointing out that “the bulk of R&D funding should come from the private sector who are business owners and will ultimately benefit directly from the research outcomes”.
Mr. Nami reiterated that “Research and Development have been identified as a veritable means for companies that want to remain competitive and profitable in today’s rapidly changing business environment.”
Nami, who was represented by his Senior Special Assistant, Mr. Gabriel Ogunjemilusi, provided details on Federal Government’s tax regime, incentives, and related facts. This include: “Allowable deduction of up to 10 percent of amount of reserve made out of the profits of a period by a company for research and development; claim of capital allowance on capital expenditure on plant and machinery used for R&D activities; pioneer status tax holiday for R&D companies; companies and other organisations that invest in R&D facilities for commercialisation can claim a tax credit of up to 20 percent of the cost of their qualifying expenditures.”
He assured participants that the Federal Inland Revenue Service (FIRS) will continue to support companies operating in Nigeria to take advantage of available fiscal incentives provided by the Nigerian tax laws.
The Workshop attracted renowned finance and legal experts who spoke on topics such as: Provisions of the NOGIC Act on R&D; R&D Operating Model and Imperatives on Success; Royalty Potentials from R&D Investments and Constraints of Investing and Way Forward.”
