Tax consultants and legal experts are calling for the integration of Nigeria’s incoming tax regime into an “easy-to-use” digital framework to encourage tax compliance and inject vital cash flow back into Small and Medium Enterprises (SMEs) struggling with current analogue burdens.
At a BusinessDay event on Thursday celebrating Nigeria’s top hundred fastest growing SMEs in Lagos, the experts said that complex, and paper-based compliance slows down the process and exposes small businesses to massive penalties.
“If governments try as much as possible to ensure that taxes are properly digitalised, it makes it easy,” said Oluwatobi Olafajo, senior manager tax and regulatory services at Forvis Mazars, Nigeria. “Just as I can sit down with my bank app and make transfer, I think we should also get to that point where I can almost make my tax payments by a USSD code,” he added.
From January 6, enterprises with an annual turnover of N100 million or lower get to keep 100 percent of their profits without paying Company Income Tax (CIT) and Development Levy, while those that earn higher will pay as much as is assigned.
Adeyemi Adeniran, partner, commercial practice at Andersen explained just how expensive non-compliance with tax payments will be. He stated that a N2 million liability left unpaid for six years can balloon to N15 million due to compounded interest.
Omoruyi Edoigiawerie, founder and lead partner EandC Legal said that businesses that comply could save up to N100,000 monthly in fine. However, the benefits will elude many without awareness.
“A lot of the challenges we have stem from ignorance and compliance,” he said, adding that companies must seek expert advice rather than over-the-top information.
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“Generic, off-the-shelf digital advice may not be the best for you. Sit down with someone who understands this, download what your business flow is, especially with respect to your revenue generation, and then list what your obligations are. Bring them within the digital framework and make your payments,” he said.
Compliance also comes with advantage for investment attraction. “When trying to raise funds, some of the things investors ask for if tax certificate to ensure you have no liability that could impact the business. That can help you become desirable to investment,” Adeniran said.
He added that the tax system incentivizes growth through tax credits for investments in capital assets, which can be used to reduce future tax bills.
When a big company pays a supplier, they often have to deduct a percentage of that money, about two percent called Withholding Tax (WHT) and send it to the government.
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The supplier has to wait months or years to claim that credit back from the government. From next year, small business incomes are exempt from this deduction at source. In the same vein, manufacturers who are the primary producers are often exempt from WHT on their sales.
Bethel Olujobi
Bethel Olujobi reports on trade and maritime business for BusinessDay with prior experience reporting on migration, labour, and tech. He holds a Bachelor’s degree in Mass Communication from the University of Jos, and is certified by the FT, Reuters and Google. Drawing from his experience working with other respected news providers, he presents a nuanced and informed perspective on the complexities of critical matters. He is based in Lagos, Nigeria and occasionally commutes to Abuja.
