Nigeria’s free-zone regime is approaching a critical policy test. As the Federal Government moves to tighten tax and customs administration, it must also guard against weakening one of the country’s few established mechanisms for attracting large-scale, export-oriented investment, writes James Emejo
Nigeria’s ambition to build a $1 trillion economy will ultimately be measured in factories, exports, jobs and the volume of long-term capital committed to production—not in the number of policy documents it produces.
That places the country’s free-zone regime at an important crossroads.
The emerging debate over proposed changes to the fiscal and customs treatment of free-zone enterprises is ostensibly about revenue, tax compliance and closing loopholes. But beneath the technical provisions lies a much bigger economic question: can Nigeria tighten oversight without weakening the incentives that make its special economic zones attractive to investors in the first place?
That question assumes greater significance against the backdrop of the federal government’s $1 trillion economic ambition, which depends heavily on expanding productive capacity, attracting foreign direct investment, increasing exports and deepening manufacturing.
The draft Nigeria Export Processing Zones (Domestic Sales, Fiscal Alignment and Customs Treatment) Regulations, 2026, obtained for this report, offers an insight into the proposed framework.
Issued under the Nigeria Export Processing Zones Act and the Nigeria Tax Act 2025, the draft says its objectives include improving investor confidence, protecting government revenue and enhancing the global competitiveness of the zones.
Under the existing free-zone architecture, approved enterprises enjoy exemptions from certain taxes, levies, duties and foreign-exchange restrictions, alongside other incentives designed to attract investment and support export-oriented production.
The proposed regulations retain several of those incentives but introduce new conditions around domestic sales.
Under the draft, an enterprise would qualify for tax exemption on profits where at least 75 per cent of its annual turnover comes from exports and not more than 25 per cent from sales into the Nigerian Customs Territory.
More significantly, from January 1, 2028, profits arising from sales into the Nigerian Customs Territory would become fully taxable, irrespective of the proportion of domestic sales.
For investors making long-term commitments, that is not a minor administrative adjustment.
A refinery, petrochemical complex, automobile plant, pharmaceutical facility or export-processing operation can take a decade or more to recover its capital. Investment decisions are therefore based not only on today’s tax rate but on the credibility and durability of the rules under which capital is committed.
This is where the government faces a delicate balancing act.
There is a legitimate case for preventing abuse of free-zone incentives. Companies that divert duty-free goods into the domestic market outside approved arrangements should not be permitted to use the zone regime as a mechanism for avoiding legitimate duties and taxes.
The draft itself provides for consequences for unauthorised movement of duty-free goods, including customs duties, import VAT and other applicable charges, administrative penalties, seizure and possible prosecution.
The issue, therefore, is not whether government should enforce compliance. It should.
The more consequential question is whether enforcement can be strengthened without progressively eroding the economic proposition that distinguishes a free zone from an ordinary industrial location.
That distinction matters because incentives are not supposed to be an end in themselves. Their economic justification is that they help Nigeria attract productive capital that might otherwise go elsewhere.
The Dangote lesson
Nigeria already has a powerful domestic example of what such an investment proposition can produce.
The Dangote Refinery and Petrochemical complex is located within the Dangote Industries Free Zone in Lekki, Lagos. The project illustrates the scale of industrial investment that can emerge where infrastructure, fiscal incentives, customs arrangements and regulatory support converge.
The facility’s economic significance extends beyond its physical size. A project of that scale has implications for domestic refining capacity, petrochemicals, foreign-exchange demand, industrial supply chains, employment and the country’s ability to retain more value from its energy resources.
That experience raises a fundamental investment question for policymakers: if the fiscal and regulatory advantages of free zones are substantially reduced, what would persuade the next investor considering a $500 million, $1 billion or $5 billion project to locate inside one?
Nigeria is competing for capital with jurisdictions that deliberately construct specialised investment environments around taxation, customs, infrastructure and regulation.
The country therefore needs to measure the free-zone regime not only by revenue forgone but also by the investment, employment, exports, technology transfer and industrial capacity generated in return.
Reform without policy rupture
The proposed changes also bring the question of policy consistency into sharper focus.
An investor entering Nigeria today is making a decision based partly on the rules currently in force. If those rules change substantially after capital has been committed, the economic effect extends beyond the immediate tax liability.
Investor confidence is particularly sensitive to policy predictability because industrial capital is relatively immobile.
A government can amend a tax regulation quickly. A company cannot relocate a refinery, factory or processing plant with the same speed.
The draft recognises this problem to an extent. It provides that enterprises enjoying incentives validly granted before the commencement of the new Act may continue to enjoy them for the unexpired portion of their statutory approval period, subject to applicable law and the terms of their original approval.
That transitional principle is important.
Government can distinguish between incentives granted to existing investors under established legal arrangements, new incentives for future investors and benefits that should be withdrawn from enterprises that breach their obligations.
Such differentiation would allow fiscal reform without creating unnecessary uncertainty around investments already made in reliance on government-approved arrangements.
Who regulates the zones?
Another critical issue is institutional coordination.
The draft provides that the Nigeria Export Processing Zones Authority (NEPZA) shall remain the exclusive regulator for licensing, operational oversight, supervision and non-tax administration within the zones.
The Nigeria Revenue Service would have responsibility for tax administration, while the Nigeria Customs Service would retain responsibility for customs control and enforcement.
On paper, the division is logical.
The problem arises when separate mandates become competing centres of authority.
A free zone requires a regulator capable of coordinating the commercial and operational realities of the zone while allowing tax and customs agencies to perform their statutory responsibilities.
That makes the institutional strength and clarity of NEPZA particularly important.
The Ministry of Industry, Trade and Investment has maintained that the reform is intended to improve fiscal accountability while preserving the competitiveness of free zones. Minister Jumoke Oduwole has also said the reform process involved NEPZA and the Oil and Gas Free Zone Authority and that the agencies would retain licensing and operational responsibilities.
The next step should therefore be greater transparency around how the proposed framework was developed, including the inputs received from NEPZA, operators, workers and other stakeholders and how those submissions influenced the final provisions.
The concerns raised by workers and unions also deserve consideration, particularly where they relate to employment, investment flows and the operational sustainability of the zones.
But those concerns should be tested against evidence.
The government should publish the economic assumptions behind the reform: how much additional revenue is expected, what investment impact is anticipated, how many jobs could be affected and what happens to exports and new capital under the proposed regime.
That would move the debate from competing assertions to measurable outcomes.
The bigger problem: an outdated law
There is an even more fundamental issue that should not be lost in the tax debate—the age of the legislation governing NEPZA.
The NEPZA Act, enacted in 1992, predates the current structure of global supply chains, digital commerce, modern special economic zones, contemporary investment financing and many of the regulatory standards now used to compete for international capital.
Its limitations have increasingly become part of the investment challenge.
Modern investors require legal frameworks capable of dealing with complex ownership structures, infrastructure financing, public-private partnerships, dispute resolution, cross-border transactions, technology partnerships and evolving international trade arrangements.
An outdated statutory framework can create uncertainty even where the underlying commercial opportunity is attractive.
That suggests that the immediate debate over tax treatment should ultimately lead to a broader legislative reform.
Rather than repeatedly modifying an old framework through administrative and fiscal interventions, the government could pursue an executive bill to replace the existing NEPZA Act with a modern Special Economic Zones law designed around contemporary investment realities.
Such legislation could establish clearer rules for licensing, governance, incentives, customs treatment, infrastructure development, investment protection and regulatory coordination.
A national economic strategy
There is also a case for stronger coordination of the country’s special economic zones.
Free zones cut across taxation, customs, trade, ports, infrastructure, investment promotion, manufacturing and foreign exchange. Their success therefore cannot depend entirely on the priorities of one ministry or agency.
A coordinated national framework involving NEPZA, OGFZA, the finance and industry ministries, the Nigeria Revenue Service, Customs, the Central Bank, port and infrastructure agencies and private-sector operators could provide a more coherent strategy.
The objective should not be to create another layer of bureaucracy, but to prevent conflicting policy objectives from undermining one another.
Nigeria’s economic challenge is ultimately larger than the question of how much tax a free-zone company should pay.
The more important question is what kind of productive economy the country wants to build.
Factories create jobs. Export industries generate foreign exchange. Petrochemical plants create downstream industries. Industrial parks create supply chains. Large-scale investments expand the tax base over time.
That is why the fiscal value of free zones should be assessed alongside their wider economic returns.
Government has a legitimate interest in revenue mobilisation. It also has a legitimate interest in preventing abuse of tax and customs incentives.
Those objectives do not necessarily conflict with maintaining a competitive investment regime.
The policy challenge is to design a system that is tough on abuse, rigorous on compliance and predictable for legitimate investors.
For Nigeria, the test of the proposed reform should therefore extend beyond the tax ledger.
If the new framework produces greater revenue while attracting more factories, exports and capital, it will have strengthened the economic case for free zones.
If it increases the immediate tax take but makes long-term investors more hesitant to commit capital, the country may simply be transferring revenue from tomorrow’s productive economy to today’s fiscal accounts.
That is a calculation worth making before the rules are finalised.
Nigeria’s $1 trillion ambition requires productive capacity at a scale the conventional economy has struggled to generate. Free zones can form part of that strategy—but only if the incentives, regulation and institutions surrounding them are credible enough to support long-term investment.
The answer, therefore, may not be to weaken NEPZA because its framework requires reform, but to modernise the law, clarify institutional responsibilities, strengthen enforcement and make the investment proposition more predictable.
The country needs a free-zone system that protects public revenue without taxing away the very industrial ambition it was created to attract.