Tax Incentives; the first step towards driving investments in sports.

One of the ways the Federal Government encourages investment is by granting pioneer status to companies in selected industries and products. This pioneer status exempts these industries and products from Corporate Tax for 3-5 years. These are industries and products deemed to be strategic to the economic development of the country and that need major investments. Other incentives include Export Expansion Grant (EEG) which is an incentive to encourage exportation from Nigeria, Investment Allowance for companies that acquire plant and machinery, and Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme for companies who spend on the construction or refurbishment of eligible roads. 

The point is, the Government gives incentives to companies and industries deemed worthy of these incentives. There has been a clamour for an increase in Government’s investment in sports and that the Government should make favourable policies to enable the sports industry to grow. With the decreasing Government revenue and pressure of investing in other sectors such as education and health, sports might not be a priority sector. What the Government can do, however, is to give incentives to encourage investments in the sports industry. Here are some of the incentives that should be considered.

1. Pioneer Status – Pioneer status should be extended to the sports industry to encourage investment in the sector. With the investment needed to bridge the infrastructure gap in the sports sector, it is almost impossible for a company to break even in the first three years. But if they do, the pioneer status will give them an opportunity to recoup investments before corporate income tax becomes applicable. To prevent the abuse of the scheme, the status can be restricted to sports organisations investing a substantial amount in infrastructure. For instance, a football club building a new stadium or carrying out major renovations in an existing one, an apparel manufacturing company building its factor in Nigeria, or a sports company building recreation park and outdoor courts. 
2. Tax Rate – The Corporate Income Tax (CIT) rate for sports organisations should be reduced to either 15% or 20% as compared to 30% paid by other companies. The reduced rate should cover all organisations set up for the sole purpose of rendering services in the sports value chain. Such organisations include sports marketing companies, sports law firms, sports apparel manufacturing companies, sports research companies, talent management companies, and sports media companies. Currently, Section 23(1) of the Companies Income Tax Act exempts the profits of companies formed solely for the promotion of sporting activities from tax. However, the condition is that the profit should be wholly expended on those promotional activities, and other conditions to be prescribed by the Federal Inland Revenue Service. Considering that we need to encourage investment into professional sports as a business with the expectation of getting returns on investment and capital employed, the condition that the profit is exclusively invested back into promotion defeats the objective. 
3. Tax Credit for Sports Sponsorship – The Companies Income Tax Act treats any donations made by corporate organisations to the National Sports Commission and its state association as a deductible donation. This provision does not incentivize corporate organisations but only confirms that they would not be punished should they choose to donate to the Sports Commission. A proper incentive will be in the form of a tax credit for the organisations equivalent to their investment in sports. Corporate organisations such as banks, manufacturing companies, Oil and Gas Corporations, and telecommunications companies have hug annual marketing/sponsorship budgets. A good way to make them consider sports as a marketing option is if there is a tax credit attributed to that expense. Again, to avoid abuse, the Government can have a threshold for qualification, can restrict the tax credit to a certain percentage of the expense and make the percentage graduated. For instance, the minimum threshold to qualify for the tax credit could be N5m; annual spend between N5m and N10m can get a tax credit equivalent to 7.5%, annual spend between N10m – N50m can get 10% credit etc. Sports sponsorship will increase when corporate organisations realise they can reduce their tax liability by increasing the amount they spend on sports sponsorship. 

The Government needs a private partnership to develop both recreational and professional sports in the country as it is obvious that it cannot solely bear that burden. These incentives will be a good way to invite private partners. Other incentives that could be considered are a reduction in withholding tax rate for sports services and Capital Gains Tax exemption on assets acquired for sports purposes such as land purchased to build sporting facilities.