It appears the year is taking off on favourable grounds for small businesses popularly referred to as SMEs in Nigeria — especially entrepreneurs making less than ₦100 million annually in various industries. A new bill passed by the Minister of Finance, Budget and National Planning, Zainab Ahmed would have small businesses whose annual revenue is between ₦25 million to ₦100 million, pay 20% in company’s income tax (CIT) as opposed the 30% which is currently been paid across all borders while companies that accrue a turnover of over ₦100 million would still pay the 30% CIT.
She posits that with the decrease in the company’s Income tax, small businesses would have more cash to drive innovations, improve productivity and efficient management of the organisation.
According to her, “Our assessment is that any business that has a turnover of less than N25m needs that break, not being taxed so they can invest in their businesses. And we reduced the tax for medium-size businesses from 30 percent to 20 percent so they can have more resources that they can plough back in their business. These are the largest employers of labour. The federal and state governments have a total labour force of less than one percent of the population”.
Additionally, she explained the benefits of the reduction and how small businesses can leverage on this new development structure their organizations and create more value, “Not only will small businesses be able to do more because they are not paying taxes, but we are also working together with the trade authorities to also encourage people in the informal sector to become formalize because they will see other businesses like them that are not registered doing well. Their productivity will increase, they will employ more Nigerians and at the end of the day, they will grow to the level of a medium-size business and begin to pay revenue,” Ahmed said.
Currently, all companies regardless of the annual turnover pay the 30% company’s income tax. According to research, over 70% of small businesses don’t comply with this due to the high percent. This new bill-SMEs exempted from Company Income Tax-would ensure that small businesses can pay their tax as well as have sufficient cash flow for business operations.
SMEs contribute 48% of national GDP, account for 96% of businesses and 84% of employment, according to International Council for Small Business, MSMEs make up 90% of all companies in the country. These stats show that more attention is required to be given to these businesses as they generate revenue for the country and also alleviate the high unemployment rate in the country. This newly passed bill to see Nigerian SMEs exempted from Company Income Tax is surely a good start.
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