Tuesday, November 29, 2017 4:36 PM / Deloitte
“Whilst we expect the new guidelines to address a lot of the abuse and practical challenges that led to suspension of the erstwhile Scheme, all eyes must now be set on ensuring that challenges arising from implementation of the new guidelines are properly addressed.”
The Federal Government of Nigeria (FGN), vide the Nigerian Export Promotion Council (NEPC), recently issued the revised guidelines for operation of the Export Expansion Grant scheme (hereinafter referred to as “EEG” or “the Scheme”). This move follows the decision of the FGN to reintroduce the Scheme, which had been suspended since 2013.
The EEG was originally introduced by the FGN in 1999 pursuant to the Export (Incentives and Miscellaneous Provisions) Act of 1992.
The FGN’s objective for introducing the EEG was to stimulate export-oriented activities in the nonoil sector and curtail a growing gravitation towards a mono economy.
Fast forward to 2017, FGN is of the view that the objectives of the EEG are still relevant, more so at a time when diversification is touted as the only way to build a sustainable economy. The effective date of the revised guidelines is 1 January 2017, albeit, exports made between the time the scheme was suspended and its reintroduction are Deloitte Trade Newsletter November 2017 Deloitte Trade Newsletter 02 covered under the new guidelines. Highlights of the revised guidelines are as follows:
An intending beneficiary of the EEG must be registered with the Corporate Affairs Commission and NEPC (i.e. as an exporter), and must be a manufacturer or merchant of products of Nigerian origin.
Furthermore, an intending beneficiary must have carried out a formal export (with proceeds repatriated to Nigeria within 300 days from the date of export) and submitted baseline data (i.e. relevant completed forms, audited financial statements etc.) for the relevant period. The baseline data is used in determining the incentive rate for the beneficiary’s exports in a given year, and ultimately, the quantum of incentives enjoyed by the beneficiary.
Beneficiaries are also required to present an Export Expansion Plan as a prerequisite for participating in the Scheme. This would be a basis for determining continued eligibility.
2. The Incentive
Beneficiaries of the EEG would be entitled to an export credit certificate (ECC). The ECC is similar to the defunct negotiable duty credit certificate (NDCC) which was granted to beneficiaries and used as a negotiable tax credit. However, unlike the NDCC which was transferable from trader to trader without restrictions on title and tenure, the ECC is only valid for two years after issuance and transferrable only once within this period.
The ECC may be used for the following:
3. Determining the Incentive
The Guideline retains the ‘weighted eligibility criteria’ used in the old framework. In determining the applicable incentive rate, an intending beneficiary of the EEG is scored based on the following attributes:
ii. Product profile: The objective is to encourage the export of value added and processed products as the FGN seeks to promote an industrialized economy. The maximum applicable rates, depending on the profile of products being exported, are indicated in the table below:
In comparison with the maximum applicable rates under the old EEG regime (where maximum rates ranged from 5% to 30%), there has been a reduction in the incentive rates. However, the exact rate of incentive due to an exporter depends on the weighted score as calculated in paragraph (i) and the product profile as indicated in paragraph (ii). In essence, the incentive is determined using the following matrix:
The above table highlights some uncertainty around the incentive rates applicable to a qualifying exporter with a score band of exactly 5%. It would be necessary for NEPC to come up with a clarification on this.
4. Claiming the Incentive
To claim the ECC, an intending beneficiary would be required to submit the following documents:
Form NXP duly certified by the processing bank, Nigeria Customs Service (NCS), and Pre-shipment Inspection Agents;
• Bill of lading;
• Final commercial invoice;
• Single Goods Declaration (SGD) forms endorsed by NCS1;
• Evidence of full repatriation of export proceeds2 ;
• Clean Certificate of Inspection (CCI)3
• NEPC Non-oil Export Certificate;
• Certificate of Manufacturer (where applicable);
• Scanning Report; and
• Any other document as may be required by the NEPC.
The ECC is expected to be issued after claims have been approved. The intending beneficiary could thereafter utilize the ECC by presenting it to the relevant collecting agency.
5. Claiming Outstanding Credits
Outstanding claims for tax credits earned by qualifying exporters who engaged in qualifying exports between the time the Scheme was suspended4 and its subsequent reintroduction would be processed under the revised guidelines. These claims are expected to have been made before the deadline of 27 April 2017, as earlier communicated by the NEPC.
6. Administering the Scheme
The EEG would be administered by the NEPC with the support of the EEG Implementation Committee (EEGIC)5. Their mandate would be to consider applications from intending beneficiaries, make recommendations to the HMoF for approval and ultimately issue ECCs to beneficiaries. Claims for ECC are expected to be verified from time to time through a validation programme. Specifically, submissions made by beneficiaries would be reviewed for consistency with representations made to the NEPC and regular impact assessments would be undertaken to ensure objectives of the Scheme are met.
Beneficiaries of the EEG would be required to pay two percent (2%) of the value of ECC approved and collected, and four percent (4%) of ECC utilized. The objective of these fees is to help fund administration of the Scheme.
7. Handling Violations
Violation of the revised guidelines by beneficiaries of the Scheme would be handled by the Presidential Committee on Trade Malpractices and the Economic and Financial Crimes Commission with support of the EEGIC.
Reintroduction of the EEG and release of the revised guidelines is laudable and demonstrates FGN’s commitment to her economic recovery and growth strategy. However, like many other FGN incentives, a robust implementation strategy would need to be deployed to ensure all ECCs granted under the Scheme are honored by relevant collecting agencies and abuse is effectively managed.
Whilst we expect the new guidelines to address a lot of the abuse and practical challenges that led to suspension of the erstwhile Scheme, all eyes 5 The EEGIC is made up of the NEPC, Federal Ministry of Finance, NCS, CBN, Federal Inland Revenue Service, and Federal Ministry of Industry, Trade and Investment. Deloitte Trade Newsletter 04 must now be set on ensuring that challenges arising from implementation of the new guidelines are properly addressed.
For instance, when would unutilized NDCCs issued prior to suspension of the old EEG arrangement be settled? How would ECCs be transferred from one beneficiary to another? How are Nigerian originating goods defined? Are the products listed in each product category exhaustive? Would products outside the list be considered? It would also be interesting to see if all claims under the EEG (including those due under the old regime) would be settled, considering the potential value of this liability vis-à-vis the sums approved by the National Assembly for disbursement.
We expect that NEPC would regularly update these guidelines and/or issue formal notifications to provide clarifications as they become necessary. Importantly, we also expect that relevant FGN agencies who may be required to honor ECCs have been sensitized. To have ECCs rejected by one or more FGN agencies, as alleged under the old arrangement, would hamper the FGN’s efforts at promoting non-oil exports.
2. CBN confirmation of repatriation would be required
3. The CCI should include certification of quality
5. The EEGIC is made up of the NEPC, Federal Ministry of Finance, NCS, CBN, Federal Inland Revenue Service, and Federal Ministry of Industry, Trade and Investment.
5. Nigeria Q3’17 Trade Report - Oil Exports Lift Current Account To 3-Year High