Introduction

Nigeria boasts substantial reserves of various natural resources, including energy minerals like coal and lithium, metallic minerals such as gold and lead-zinc, and industrial minerals like limestone and barite. During the 1960s and early 1970s, the country was a significant exporter of tin, columbite, and coal. However, by the mid-1970s, the mining sector saw a dramatic decline, primarily due to political and economic factors, and notably, the discovery of crude oil in Oloibiri, Bayelsa State. This discovery marked a transformative era for Nigeria’s economy, making crude oil exports the primary source of foreign exchange earnings.

The heavy reliance on crude oil led to the neglect of the mining sector, rendering Nigeria’s economy vulnerable to international oil politics and the uncertainties of export earnings. Although successive Federal Governments have shown varying degrees of commitment to revitalizing the mining sector, achievements have been modest. For instance, a renewed national focus on mining in 1999 led to the enactment of the Nigerian Minerals and Mining Act (NMMA) in 2007. Despite these efforts, the sector’s contribution to Nigeria’s Gross Domestic Product (GDP) remained under 1% as of 2023.

Fiscal Considerations

Taxes, Royalties, and Fees

Entities involved in mining activities in Nigeria are subject to various tax laws:

Companies Income Tax Act (CITA): Companies are taxed under CITA, while individuals and partnerships are taxed under the Personal Income Tax Act (PITA).

Corporate Income Tax (CIT):

• Small Companies (with gross turnover less than ₦25 million) are exempt.
• Medium-sized Companies (₦25 million to ₦100 million) are taxed at 20%.
• Large Companies (over ₦100 million) are taxed at 30%.
• CIT is payable to the Federal Inland Revenue Service (FIRS). Mining companies with pioneer status are exempt during their tax holiday.

Tertiary Education Tax (TET)

Companies engaged in mining must pay a 3% TET on their assessable profit, payable to the FIRS.

Treatment of Losses

Losses incurred can be carried forward indefinitely and set off against future assessable profits until completely offset.

Minimum Tax Provision

Minimum tax applies if:

• The ascertainment of total assessable profits results in a loss.
• The tax payable is less than the minimum tax.
• Exemptions include companies in their first four years of operation, agricultural trade businesses, and those with a gross turnover of less than ₦25 million.

Excess Dividend Tax (EDT)

EDT applies if dividends are paid out of untaxed profits. However, dividends from previously taxed profits, exempted income, franked investment income, and certain real estate investment company distributions are exempt from EDT.

Transfer Pricing (TP)

Transactions between connected persons are subject to TP rules to ensure arm’s length pricing. Compliance with TP regulations is mandatory.

Personal Income Tax (PIT)

Individuals and partnerships in mining are liable to PIT at an average effective rate of 18.96%, payable to the States’ Board of Internal Revenue (SBIRs).

Value Added Tax (VAT)

A 7.5% VAT applies to minerals sold locally, with exports exempt from VAT.

Capital Gains Tax (CGT)

A 10% CGT is levied on gains from the disposal of chargeable assets, with provisions for rollover relief.

Stamp Duties

Stamp duties are payable on dutiable documents and transactions, with the current rate on authorised share capital at 0.75%.

Withholding Tax (WHT)

WHT applies to dividends, interest, rent, and royalties, ranging from 2.5% to 10%. A lower rate of 7.5% applies to countries with which Nigeria has a double tax treaty (DTT).

Royalty

Royalty rates range from 3% to 5% depending on the mineral. Payment deferral is possible with ministerial and Federal Executive Council approval.

Annual Service Fee and Surface Rent

Annual fees are calculated based on the number of Cadastre Units held. Surface rent is paid to landowners or occupiers as per the Memorandum of Understanding.

Other Fees

Additional fees may be imposed by the Mining Cadastre Office (MCO) and local authorities.

Fiscal Incentives

Under the NMMA

• Tax holiday: An initial 3-year tax holiday, renewable for another 2 years.
• Foreign exchange retention: Exporters may retain part of their earnings for operational needs.
• Customs and import duty exemptions: For mining equipment.
• Free currency transfer: For servicing certified foreign loans and business liquidation.
• Personal remittance quota: For expatriates.
• Accelerated Capital Allowance: 95% initial allowance on mining expenditure.
• Investment Allowance: 10% on qualifying plant and machinery.
• Capitalization of infrastructure costs: Approved costs are capitalized with a 95% capital allowance.
• Unutilized capital allowance: Indexed at 5% annually for mines starting production within five years of the Act’s enactment.
• Royalty concession: Possible deferral with approval.
• Tax deductible environmental costs: Subject to certification.

Under the CITA

• Export income exemption: Profits from mineral exports repatriated and used for mining inputs are tax-exempt.
• Partial exemption for foreign loans: Subject to conditions.
• Tax-exempt foreign income: If brought into Nigeria through approved banks.
• Road Infrastructure Tax Credit Scheme: Recoupment of road construction costs as tax credit.

Under the Industrial Development (Income Tax Relief) Act (IDITRA)

• Pioneer Status Incentive (PSI): Tax relief for three years, extendable by two more years.
• Dividend exemption: Dividends from tax-exempt profits are tax-free.
• Capital allowance on QCEs: Deemed incurred post-tax relief.
• Loss carryforward: Net losses during tax relief can offset future profits.

Finally,

Nigeria’s mining sector, though historically neglected, holds significant potential for growth. Strategic tax considerations and incentives aim to stimulate investment and development in this critical industry.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Inner Konsult Ltd at www.innerkonsult.com at Lagos, Ogun state Nigeria offices, or www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.