The Federal Government of Nigeria in 2016 published its Power Sector Investment Guideline in which it expressed its desire to have solar power contribute at least 10 percent of the national power generation capacity by 2019 and 16 per cent by 2022. In a bid to achieve its plans, the government hopes to drive investment towards the building of solar power plants in areas where feasibility studies have indicated potentials for good yields.

One of the incentives the government uses in attracting investments to important sectors in the country is the grant of Pioneer Status to companies participating in eligible sectors. The Pioneer Status Incentive (PSI) is in itself a fiscal incentive under the Industrial Development (Income Tax Relief) Act designed to help the benefiting corporate entities cut down on overhead cost through tax exemption for an initial period of three years which can be renewed for an additional maximum period of two years.

The Nigerian Investment Promotion Commission (NIPC) regulates the process of granting the incentive and from time to time publishes a list of pioneer (eligible) industries. Under regulations published by the NIPC in 2014, companies within the eligible industries applying for the grant of the incentive must be registered in Nigeria and have incurred capital expenditure of at least N10,000,000 (Ten Million Naira). The NIPC in 2014 released a list of 18 (Eighteen) eligible industries which was recently updated with 27 (Twenty Seven) additional industries.

Of particular importance to investors in solar the power market space is the inclusion of “Manufacture of batteries and accumulators” in the new list of eligible industries for the PSI. This is understandably in line with government’s desire to promote investment in alternative sources of electricity considering that the processing of coal and the manufacture of steam generators were similarly added to the list.

Investors planning to engage in the design and production of accumulators and batteries for solar panels may now benefit from the tax exemptions to be made available by government under the PSI scheme.  The available income tax reliefs include Companies Income Tax and Withholding Tax on dividends for the period for which the pioneer status is granted and/or renewed. The company will also be able to carry forward its capital allowances to subsequent years of assessment after the expiration of the period. It therefore means that the benefiting company may still be able to enjoy additional tax relief upon the expiration of the PSI.

Investors desirous of benefiting from the scheme must however take note of such requirements as the need to apply for the PSI within the first year of production of the batteries and accumulators while applications for extension must be made within one month of the expiration of the initial tax relief period of three years. Solar power companies whose operations do not presently cover the manufacture of batteries and accumulators may also consider expanding their scope of operations to benefit from the scheme as the date on which they commence the production of the eligible products would count as the effective date for assessing their qualification for the incentive.

Other important requirements for qualification is a Minimum Asset Base of non-current tangible assets valued at N100, 000,000 (One Hundred Million Naira) and Submission of Annual Performance Report to the Nigerian Investment Promotion Commission (NIPC).