Pioneer status is an investment incentive, in the form of a tax holiday, which the federal government of Nigeria grants to qualified and eligible indigenous companies to promote local content development. Provisions for this are made primarily under the under the Industrial Development (Income Tax Relief) Act 2004, Nigerian Investment Promotion Council (NIPC) Act and now the Pioneer Status Incentive Regulations

This tax holiday, ideally supposed to last for five years and seven-years for industries located in economically disadvantaged local government area of the Federation. The aim is to encourage and boost investments and also support upcoming industries to make reasonable level of profit within its foundational years before paying taxes to government

Presently, 69 approved industries declared pioneer industries, which can benefit from tax holidays including mineral oil prospecting and production (petroleum)

Once granted, this incentive can be revoked only on the following grounds:

  • Contravention of the provisions of the NIPC Act;
  • Tax evasion perpetuated under the auspices of pioneer status incentive; and
  • Manipulation of financial books with the intent to reduce the service charge

While this is a laudable incentive by government, the reality is that Nigeria loses so much money through this. The Ribadu Report identified several oil companies that have abused this privilege and recommended that the scheme should be stopped and the current ones set aside and or revoked

Recent findings show that 30 percent of the companies that received tax waivers from government under this scheme abuse the system. As a short-term measure, Government has recently resolved to commence a review of the implementation of pioneer status exemptions to which is expected to unlock up to N36 billion of additional tax revenues in 2015/p>

Other losses include as identified in official reports include:

  • Unpaid Gas Flaring Penalties – $195m (Ribadu Report)
  • Unpaid signature bonuses – $749 Million (Ribadu report)
  • Unpaid concession rentals – $2.9 million (Ribadu report)
  • Unpaid royalties – $3.027 billion as at Dec 2011 (Ribadu report)
  • Illegal deductions for JV cash calls – $1.7 billion (NEITI 2009 – 2011 Audit reports)
  • Crude oil theft – estimated $10.99 billion (NEITI 2009 – 2011 Audit reports)
  • Theft of refined products – $1.1 billion (Ribadu Report)
  • Crude oil allocations that aren’t accounted – $5billion (2002 – 2011) (Ribadu Report)
  • Unremitted NLNG payment by NNPC – $8.4 billion (NEITI 2009 – 2011 Audit reports)
  • Fuel subsidy proceeds lost to fraud – $8.2 billion (NEITI 2009 – 2011 Audit reports)
  • Exchange rate differentials – $625 million (NEITI 2009 – 2011 Audit reports)
  • Offshore and Crude processing losses – $866 million (Ribadu Report)
  • Underpaid petroleum profit taxes – $1.13 billion (NEITI 2009 – 2011 Audit reports)
  • Unpaid NDDC contributions – $102 million (NEITI 2009 – 2011 Audit reports)
  • Unpaid education tax – $667 million (NEITI 2009 – 2011 Audit reports)