By Abdulateef Olatunji ABDULRAZAQ, Founder, Taxmobile.Online and Principal Partner, AOA Professional Services
- Navigating compliance through these finance acts considering MSME.
MSME Tax in Nigeria: Introduction
The Finance Act 2019 categorized companies into small, medium, and large companies, based on annual gross turnover. It is on this legal framework we will discuss MSME tax in Nigeria.
Small companies are companies with an annual gross turnover below N25 million; medium size companies have an annual gross turnover of N25 million and above but below N100 million, while large companies are those with an annual gross turnover of N100 million and above.
At least, 39,654,385 micro, small and medium enterprises (MSMEs) operated in Nigeria as of December 2020 as against 41,543,028 million that were in existence in 2017, indicating a decrease of 4.5 per cent.
This is contained in a report jointly released by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) and the National Bureau of Statistics (NBS)
The International Finance Corporation (IFC) estimates that 65 million firms, or 40% of formal micro, small and medium enterprises (MSMEs) in developing countries, have an unmet financing need of $5.2 trillion every year, which is equivalent to 1.4 times the current level of the global MSME lending.
Taxation of MSMEs in Nigeria
Nigeria is the largest economy in Africa but lags behind South Africa, the second-largest, in terms of the tax-to-GDP ratio. Whereas Nigeria’s tax to GDP is estimated at 6%, South Africa’s is 28%, while the average tax to GDP in Sub-Saharan Africa is 17%.
According to the annual PwC report, Ease of paying taxes 2020, it took, on average, 343 hours for entities to comply with tax payments. This was the time taken to prepare, file and pay value-added or sales tax, profit tax, labour taxes and contributions.
The enactments of the Finance Act 2019, Finance Act 2020 and Finance Act 2021 under the administration of President Muhammadu Buhari are significant milestones for the Nigeria Tax System. Let us examine 10 Highlights under the Finance Acts(2019,2020 and 2021).
10 Highlights under Finance Acts 2019, 2020 and 2021 for navigating tax compliance in Nigeria.
1. Identification of a Company: Every company shall have a tax identification number(TIN) and be displayed on all business transactions with other companies, individuals and Government Agencies.
Banks shall require such TIN from companies as a precondition to open a new account and continued the operation of existing accounts(Finance Act 2019).
2. Books of Account, Returns, Information and documentation: Every company, including a company granted exemptions from incorporation, shall whether or not the company is liable for tax under this Act, maintain books or records of accounts, containing sufficient information.
This also includes data of all transactions and where any company on request by tax authorities fails to provide books of Account, shall be liable to a penalty of N100,000 in the first month in which failure occurs and N50,000 for each subsequent month in which the failure continues. (Finance Act 2020)
3. Information to be delivered by Bankers: Every Bank shall prepare upon demand by FIRS, quarterly returns, in the case of an individual, all transactions from N5million and above, and in the case of a corporate body, all transactions from N10million and above.
Names and addresses of such customers connected with the transactions would be delivered to the Revenue Authority. Any bank that contravenes these provisions, shall on conviction be liable to a fine not exceeding N1,000,000 on corporate customers and N50,000 in the case of individuals. (Finance Act 2021)
4. National Minimum Wage: Individuals who are paid the National Minimum Wage of ₦30,000 or less per month are exempt from paying Personal Income Tax. Companies with such employees would not be required to deduct Pay-As-You-Earn(PAYE)from these employees. (Finance Act 2020)
5. Registration for VAT: A taxable person shall, upon commencement of business, register with FIRS for tax and where a taxable person fails to register, the taxable person is liable to pay a penalty of N50,000 for the first month in which failure occurs and N25,000 for each subsequent month in which failure continues. (Finance Act 2019)
6. Failure to Submit Returns: A taxable person who fails to file VAT returns is liable to a fine of N50,000 for the first month in which failure occurs and N25,000 for each subsequent month in which failure continues. (Finance Act 2019)
7. Companies engaged in educational activities are now subject to corporate income tax regardless of whether such activities are of a public character(Finance Act 2021)
8. Imposition of excise duty at N10 per litre on non-alcoholic, carbonated and sweetened beverages(Finance Act 2021)
9. The education tax payable by Nigerian companies has been increased from 2% to 2.5% of assessable profits. (Finance Act 2021)
10. Insurance premium: Premiums paid on life insurance for an employee and his spouse are allowable for tax purposes in line with the original Act. A clause has also been introduced to subject the deductibility of insurance premiums to the powers of the Revenue authorities to adjust transactions deemed artificial or fictitious.
The International Monetary Fund, in its 2021 Article IV Consultation with Nigeria, has reported that the country’s consolidated government revenue-to-Gross Domestic Product, GDP ratio at 7.5 per cent is among the lowest in the world.
Special Adviser to the President on Finance and Economy, Sarah Alade, noted that the government was committed to ensuring growth across all sectors.
She said: “We want to see prioritisation and implementation of critical infrastructure, physical, digital, financial infrastructure. We are deficient in infrastructures and we give priority to this”.
“There must be measures to diversify our revenue base, we are hoping in this plan that by 2025, the present revenue to GDP which is about less than eight per cent, we would be able to grow it to 15 per cent of GDP and then there must be continuous support and interventions for manufacturing, for agriculture and MSMEs.”
It is expected these tax reforms would help boost government revenue, improve the ease of doing business and stimulate economic growth this year.
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More About Author:
Olatunji is the founder Taxmobile.Online and Managing Partner/CEO of AOA Professional Services. Prior to this,Olatunji worked as Director,Tax & Regulatory Services at Nolands Nigeria Professional Services, Senior Manager -Tax,Regulatory & Advisory Services at Saffron Professional Services.
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