WILL FREE TRADE ZONES DISAPPEAR UNDER THE NEW TAX REGIME?, ,
W. Y. MAMMAN urges government to provide explicit instructions on the tax act to ensure fairness , filing procedures, and record-keeping
There is no doubt that the recently enacted Nigeria Tax Act, 2025 comes with a lot of benefits, chief among being the simplification and merging of many burdensome regulations, which were quite befuddling to many tax payers. As with all good initiatives, there are unintended consequences, which policymakers must address in order not to cause more harm than the intended good.
Nigeria’s Free Trade Zones (FTZs) have served as an important instrument for industrialisation, investments promotion and export-oriented economic growth. These objectives were enshrined under the Nigeria Export Processing Zones Act, Cap. N107 LFN 2004, particularly sections 1,2,3,8 and section 18 and expanded under the Oil and Gas Export Free Zone Authority Act, Cap. O5 LFN 2004. These statutes historically granted broad incentives, including full tax exemptions, duty-free importation under NEPZ Act Cap. N107 LFN 2004 sections 23-24 and unrestricted repatriation of capital under section 18(1)(d). The FTZ framework historically provided broad tax exemptions, duty-free importation of machinery and raw materials, and the ability to repatriate profits without restriction from the Nigerian government.
With the enactment of the Nigeria Tax Act 2025 (section 60 and the Second Schedule), these incentives have been recalibrated.
For the avoidance of doubt, we invite you to the provision of section 60 of the NTA 2025, which states thus: “where a trade or business is carried on by an export processing or export free zone entity, the provisions of the second schedule to this act shall apply.”
For us to understand the statute, recourse shall be made to the second schedule of the act, which borders mainly on export processing and free trade zone entities. The schedule has new provisions, which if not reviewed, has the potential to erode investors’ confidence and jeorpardise future investments in these zones. The most troubling amongst these is the imposition of taxes on profits from 2028, completely negating the spirit and vision behind the establishment of FTZs.
Before the advent of the Nigeria Tax Act 2025, the Nigerian Free Trade Zones benefited from the following incentives:
Exemption from federal, state, and local taxes. Duty-free importation of capital equipment, raw materials, and intermediate goods. Freedom to repatriate profits and dividends.
This framework allowed FTZ operators to plan long-term investments based on a predictable fiscal environment. Historically, these provisions under the 2004 Act were considered automatic and unconditional for qualified enterprises. These are not the same in the 2025 Act.
The Nigeria Tax Act 2025 (Section 60 and the second schedule) amends the FTZ legal regime under the NEPZ Act Cap. N107 LFN 2004 and OGEFZA Act, Cap. O5 LFN 2004 by introducing conditional exemptions and specific compliance requirements:
Conditional Tax Exemption: Tax exemption applies only to profits derived from exports of goods or services. Domestic sales are partially exempted.
Sunset Clause: From 1 January 2028, profits from domestic sales will be fully taxable, regardless of the 25% threshold.
Filing Obligations: FTZ operators must file returns with the Federal Inland Revenue Service (FIRS), even if no tax is due.
These provisions reflect a deliberate transition from a blanket exemption model to a conditional, export-focused tax regime, in an attempt to align incentives with the intended purpose of FTZs.
The NTS 2025 amendments as enacted by the National Assembly represent the primary legal authority governing FTZ taxation. Previous debates regarding FIRS’s power to reinterpret or limit exemptions have been resolved; section 60 (supra) of the NTS 2025 now defines the conditions for exemption in FTZs.
The law maintains exemptions for enterprises that comply with export-oriented criteria. Therefore, companies that derive the majority of revenue from exports, limit domestic sales within the prescribed 25% threshold, and file returns as required retain full legal entitlement to tax benefits.
The filing obligation and monitoring of domestic sales introduced formal compliance mechanisms. Failure to adhere to these requirements may result in revocation of tax-exempt status and exposure to regular corporate taxation. Legal clarity on record-keeping and reporting standards is, therefore, critical for operators.
The 1st January 2028 sunset clause mandates taxation of domestic sales profits regardless of threshold compliance. Operators must incorporate this deadline into strategic and financial planning, particularly when projecting future domestic market engagement. This, no doubt, is a burdensome requirement that makes Nigeria’s FTZs uncompetitive when compared to other jurisdictions. With many countries, some in West Africa, seeing FTZs as vehicles to attract investments and industrialise their economies, Nigeria cannot afford to place additional burden on its FTZs.
The revised FTZ framework seeks to correct historical misuse of exemptions while maintaining the zones’ role in promoting export-led growth. The changes are legally sound but carry economic consequences.
There is certainly an air of uncertainty surrounding FTZs, as firms may need to adjust operational strategies to comply with domestic sales limits and source new markets for exports within a 6-month window. Secondly, there is administrative complexity imposed by monitoring domestic revenue percentages and filing returns, which increases operational burden. Thirdly, is a focus on competitive positioning, which cannot be achieved when rules are not clear when compared with other countries with stable FTZ regimes, such as China, India, and Costa Rica, among others.
To ensure legal compliance and maintain investor confidence, the following measures are hereby recommended:
Issuance of Detailed Guidelines: The government should provide explicit instructions on the tax act to ensure fairness , filing procedures, and record-keeping.
Transitional Relief: Existing operators should receive temporary relief with a grandfather approach of at least 10-15 years to adjust operations and compliance systems.
Targeted Enforcement: Monitoring should focus on genuine abuse, avoiding penalisation of compliant operators.
Clear Communication: The government must clearly articulate conditions for exemption and consequences of exceeding domestic sales limits.
Stakeholder Engagement: Continuous consultation with industry associations, investors, and regulatory agencies of government will support informed implementation.
In conclusion, the success of the revised framework depends on transparent, consistent, and predictable enforcement.
FTZs remain a central tool for Nigeria’s industrial strategy, facilitating manufacturing, exports, and economic diversification. Though the 2025 reforms provide a legally robust and economically rational framework, there is a need to balance fiscal oversight with well-considered incentives for industrial growth, in view of the fact that there are very attractive, and highly competitive FTZs in other jurisdictions, some close to our doorsteps.
W. Y. Mamman, Esq. is with Mamman, Maiyaki & Co. Munatare Chambers in Abuja
, Education – THISDAYLIVE, December 16, 2025, 11:38 pm
