Written by SpringNewsNG | April 22, 2025

As part of its broader tax reform strategy, the Federal Government of Nigeria is introducing a new tax incentive program called the Economic Development Incentive (EDI). This innovative framework is designed to replace the outdated Pioneer Status Incentive (PSI), which has long been criticized for its inefficiencies and lack of transparency.

The announcement was made by Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, during a keynote address at BusinessDay’s Policy Intervention Series held in Lagos on April 22.

Why the Pioneer Status Incentive is Being Phased Out

According to Oyedele, a comprehensive assessment of the current PSI revealed several loopholes that have hindered its ability to drive genuine economic growth. Under the PSI, businesses could import “pioneer” goods tax-free and enjoy substantial tax holidays—even with little or no real economic contribution.

“While the PSI was originally meant to attract investment, it ended up enabling extended tax breaks with minimal oversight,” Oyedele said. “Companies often enjoy continued tax benefits even after the official holiday period ends, creating unintended long-term advantages.”

He also highlighted the difficulty in tracking forgone government revenue and the lack of clarity for investors trying to assess the real value of the incentive.

Introducing the Economic Development Incentive (EDI)

The new Economic Development Incentive is being positioned as a more accountable and impact-driven tax relief system. Unlike the one-size-fits-all approach of the PSI, the EDI is structured around priority sectors that offer high economic value, such as manufacturing, infrastructure, and services.

Key features of the EDI include:

• Minimum Investment Thresholds: Only projects with significant capital commitments will qualify. For instance, companies in capital-intensive sectors like power and utilities must invest a minimum of ₦200 billion to be eligible.
• Targeted, Time-Bound Incentives: The scheme offers a 5% annual tax credit over five years, totaling 25% of the qualifying investment.
• Performance-Based Disbursement: Companies only receive the tax credit after actual capital is deployed and verified, not merely based on proposed plans.

“This is about real economic impact,” Oyedele noted. “Tax relief will now be directly tied to actual investments—not just approvals on paper.”

How the EDI Tax Credit System Works

The EDI provides qualifying companies with a 5% tax credit annually, up to a maximum of 25% over five years. This is in addition to standard capital allowances—making it especially attractive for long-term investors.

Here’s a simplified breakdown of how it works:

• A ₦10 billion investment in the first year earns ₦500 million in tax credits annually for five years.
• A follow-up ₦5 billion investment in the second year begins its own five-year cycle, yielding ₦250 million annually.
• If a company’s tax liability is ₦15 million and its eligible tax credit is ₦25 million, the excess ₦10 million rolls over to future years.

However, if a company fails to deliver on its investment promise or halts project execution, it will lose any unused tax credits. This accountability clause ensures that only genuine, performance-backed investments benefit from the scheme.

A Shift Towards Smarter Incentives

The rollout of the EDI reflects the government’s shift toward smarter, more strategic fiscal policies that not only attract investment but also ensure measurable economic outcomes. With a clear emphasis on transparency, sectoral prioritization, and verifiable results, the Economic Development Incentive is expected to become a key pillar in Nigeria’s journey toward sustainable growth.