Case Stimulus
ROMO Agro-allied Industries Limited, Port Harcourt, was incorporated and granted a pioneer status to manufacture basic organic chemicals and fertilizers from predominantly Nigerian raw materials, with a production day of July 1, 2018. Agricultural fertilizer, chlorine, and pesticide are the approved products for the company.
The following information was extracted from the company’s financial records during the pioneer period:
Year ended Turnover Adjusted profit/ (loss)
N ’000 N’000
June 30, 2019 128,250 (41,200)
June 30, 2020 133,630 (37,500)
June 30, 2021 235,400 8,300
For about two years into its pioneer period, the fertilizer brand was not generating sufficient profits for the company, due to customers’ preference for cheaper foreign products.
In April 2021, the management of the company at one of its management meetings, decided that the company should take to importation of fertilizers from European countries in order to improve their profitability. These imported products are then repackaged by the company for final sales to its customers.
The officials of the Federal Ministry of Industry, Trade and Investment (FMITI), during one of their routine post-pioneer visits to the company in May 2025, got to know about the importation and sales of fertilizers during pioneer period. This act was considered to be inconsistent with the pioneer certificate granted to the company by the Federal Government. The FMITI subsequently informed the tax authorities of their findings.
The preliminary investigation carried out by the tax authorities in July 2025 on the activities of the company revealed that, between April and June 2021, the company’s sales and assessable profit from imported fertilizer were N102,280,000 and N12,700,000, respectively. While filing its annual returns and reports to the tax authority and FMITI in December 2021, the company reported this transaction as part of its normal operating activities, for the year ended June 30, 2021.
The schedule of qualifying capital expenditure (QCE) during pioneer period revealed the following:
QCE Date of acquisition Number of items Total amount N ’000
Industrial building July 2018 1 30,000
Non-industrial building July 2018 1 25,000
Industrial plant and equipment July 2018 2 44,000
Motor vehicle July 2018 1 7,000
Furniture and fittings July 2018 4 3,000
Motor vehicles February 2020 2 16,000
Furniture and fittings December 2020 6 4,800
The company did not apply for extension of its pioneer certificate at the end of its initial three-year period.
The company had the following statements for the first three years post-pioneer period:
Year ended Turnover Adjusted profit/ (loss)
N’000 N’000
June 30, 2022 150,900 25,100
June 30, 2023 168,800 29,300
June 30, 2024 175,350 36,200
The financial records of the company for the year ended June 30, 2025 showed the following:
N’000 N’000
Gross turnover 262,150
Deduct: Direct cost of production 117,900
144,250
Add: Other income 12,600
156,850
Deduct:
Salaries and other personnel costs 32,700
Repairs and maintenance 1,500
Vehicle running expenses 1,700
Auditors’ fees 2,400
Power cost 4,420
Depreciation 18,200
Legal and professional fees 7,900
Preliminary expenses written off 2,000
Finance charges 2,080
Allowance for doubtful debts 13,300
Administrative expenses 14,250
Donations and subscriptions 2,500
Transfer to general reserves 3,400
Income tax provision 3,600 (109,950)
Net profit 46,900
The following additional information was provided:
(i) Other incomes:
N ’000
Dividends received (net) 9,000
Excess on valuation of building 3,600
12,600
(ii) Repairs and maintenance:
N ’000
Improvement to industrial building 1,100
Repairs of plant and equipment 400
1,500
(iii) Legal and professional fees:
N’000
Acquisition of short lease 1,200
Renewal of long lease 1,300
Retainership of professionals 4,000
Legal cost incurred in respect of tax appeal 1,400
7,900
(iv) Allowance for doubtful debts:
N’000
Specific provisions 5,100
General provisions 6,700
Bad debt recovered (2,900)
Bad debt written off 4,400
13,300
(v) Administrative and other expenses:
N’000
Feasibility study 2,500
Stamp duties on increase in capital 800
Medical expenses 1,700
Insurance 3,200
Rates: Local government 2,750
Transport and travelling 3,300
14,250
(vi) Donations and subscriptions:
N’000
Donation- Oreyo Country Club 1,000
Donation of books- National Library 1,100
Subscription-Manufacturers Association of Nigeria 400
2,500
(vii) Schedule of qualifying expenditure post-pioneer period:
QCE Date of acquisition Number of items Total amount N ’000
Motor vehicles January 6, 2022 2 16,000
Furniture and fittings April 15, 2023 2 6,000
Industrial plant and equipment October 1, 2024 1 28,000
(viii) Transfer to general reserves
The decision to transfer a specific amount out of the company’s profit was approved by the shareholders at the 2024 annual general meeting.
The company received a letter from the FIRS Integrated Tax Office on the proposed tax audit of the company’s activities since inception. The audit visit has been slated for the first week of next month. For a hitch-free exercise, the FIRS, has requested for maximum cooperation from staff and management of the company.
Your firm of chartered accountants has just been appointed by the company to help in the preparation towards the impending visit.
The Managing Partner of your firm has directed you, the Senior Tax Consultant, to take charge of the assignment.