Small businesses – The Nation

  • To tax or not to tax?

Going by the provisions of the Finance Bill 2019 passed by the National Assembly, small businesses with turnovers of less than N25m are to be exempted from Companies Income Tax (CIT). Additionally, those earning between N25m and N100m yearly would pay 20 per cent, just as those earning over N100m would continue to pay the 30 per cent of their profits as CIT.

In the words of the Minister of Finance, Budget and National Planning, Zainab Ahmed: “Not only will small businesses be able to do more because they are not paying taxes, we are also working together with the trade authorities to also encourage people in the informal sector to become formalised because they will see other businesses like them that are registered doing well”.

We understand the premises of the bill. By exempting the class of economic actors from paying the company tax, the government seeks to mitigate the effects of the immense infrastructural constraints which they daily contend with. Flowing from that is that the profits so retained will be ploughed back into their businesses to expand operations.

The provision, although well-intended, is certainly fraught with innumerable challenges. To begin with, we must state that tax incentives to classes of economic players are nothing new. Even the most developed economies are known to deploy the instrument to encourage a set of economic actors. However, in an environment like ours where tax is akin to a plaque to be avoided, such measures could in fact provide additional incentives to players to avoid paying tax.

The more pertinent question at this time is – how will the government ascertain the turnover of the companies, given, not just the poor record-keeping culture of most small businesses, but the potential deliberate understatement that may arise? Does the bill provide for a sunset after which the incentive would be deemed to have lapsed? Are there limits to the number of years players in this category could enjoy the incentive? What happens should they fail to step up after?

All of the above would tend to suggest that the government properly think through the measure. Already, at a tax to GDP ratio of six percent, Nigeria not only ranks among the least tax-paying countries on the continent but in the world. Not only that, the government itself admits it has a revenue problem which only a more aggressive tax drive could cure. Given that a major issue at the moment is the 50 percent of revenues deployed into debt service, that the government would consider a policy of tax exemptions would ordinarily seem unthinkable. This is aside the task of reconciling a measure which actually buoys the extant psychology of tax avoidance vis-à-vis government’s avowed resolve to grow the tax base. In all, we doubt that the government actually has credible figures on the basis of which to proceed.

The government obviously has a lot to do, if truly it is desirous of ensuring that the measure achieves success. It begins with the compilation of a directory of players in the so-called informal sector. It is after all a notorious fact that many of them, currently operating below the radar of relevant government agencies, are known to churn out billions of naira in annual turnovers. Bringing them into the open will, in our view, achieve far more than a blanket tax exemption could; just as the government will gain more by focusing on the longer, more enduring incentives of basic infrastructure – the real enablers of business. After all, without thriving businesses, there can be no basis for taxes, let alone exemptions.

Leave a Reply

Your email address will not be published. Required fields are marked *



Check Also

Insecurity: Buhari should take full responsibility – Punch

When recently, the President, Major General Muhammadu Buhari (retd.), publicly rebuked his faltering generals, he fell short of taking full responsibility for the frightening insecurity in the land. He also failed to heed universal calls to