Converting SMEs potential into tangible results: The Economist perspective
The research report identifies key challenges that have held this segment of the economy that contributes 48 percent to the Gross Domestic Product (GDP) by the jugular, while also proffering practical suggestions on how the country can increase the welfare of the citizens through MSMEs.
This week, Start-Up Digest takes on two of the key issues of the findings: the tax system and the customs.
According to the report, for Nigeria to support MSME productivity, she must stabilise her macroeconomic policy as well as install a more transparent tax and customs system. The report says that across the full set of ‘Doing Business’ indicators measured by the World Bank, Nigeria’s performance on tax procedures is very low, citing the case of Lagos where the average company expends 956 hours per year in paying their taxes. This performance is dismal compared with the Sub-Saharan African average of 310 hours, and the Organisation for Economic Co-operation and Development (OECD) average of 175 hours. Start-Up Digest can also attest that there is uncertainty in the number of taxes MSMEs pay in Nigeria, a situation worsened by an overlapping of functions of government agencies.
The report recommends that Nigeria can emulate Rwanda, which improved its tax system through theintroduction of the e-filing for corporate income tax, value added tax (VAT) and labour contributions.
One striking thing about the Nigerian tax system is that while the number of payments in Africa averages around 36.1, South Africa requires only seven payments. In
Rwanda, it is 17, while Nigeria has 47 payments, according to PricewaterhouseCoopers (PwC).
“Companies in Nigeria complain about the multiple taxation system, which is difficult to navigate and open to abuse,” says the report.
The report adds that smuggling and pirating of goods have been one of the biggest threats to MSMEs, citing the case of illegally imported Chinese-made fabrics imitating Nigeria’s signature prints, which some customs officials turn a blind eye to.
“The Nigerian government could also crack down on petty corruption among customs officials in the country’s airports, some of whom extort SME owners that—unable to import technologies— bring them into the country in their luggage only to be charged random fees,” says the report.
It cited the case of Jason Njoku, founder of iRoko Partners, one of the largest online distributors of African movies and music, who attempted to bring IT equipment into Lagos International Airport from London, but a customs official sought to impose a $4,000 spot customs fee.
There was no online resource through which Njoku could establish the actual duty and customs charges owed, and the official made an exchange-rate calculation on a mobile phone. Such events are a serious burden for a company that is now one of Nigeria’s SME success stories, in the heart of its most exciting sector: the creative industry, the report states.
It suggests that the country’s government can reduce import barriers and tighten border controls to provide protection to SMEs without limiting their access to inputs.