SMEs unable to reach potential as multiple taxation remains
Nigerian small businesses are incapable of reaching their potential as governments at various levels continue to impose similar taxes on them.
Business operators say the indiscriminate imposition of the same types of taxes by the three tiers of government and other agencies are consistently preventing the micro, small and medium enterprises (MSMEs) from creating sufficient jobs and expanding the economy.
At a press conference held recently, Frank Jacobs, president, Manufacturers Association of Nigeria (MAN), said real sector players, especially those in the MSME category, were going through horrifying experiences in the hands of tax authorities.
“From one local government to another, you pay the same tax. This cannot help businesses to grow or government to diversify the economy,” Jacobs said.
Analysts say multiple tax collections from SMEs and complexities in formal registration processes of businesses are key factors that have kept many businesses in the informal or underground class for long.
“As soon as you register your business, different tax agencies come after you, and this can be frustrating. Many SMEs refuse to register their business so that tax authorities don’t come after them,” said Francis Onwumere, business and product developer, Prowork Project Management Limited, in Lagos.
“This is increasing the informal sector of the economy,” he said.
According to a 2014 Phillips Consulting report, Nigeria’s informal economy, which is a huge employer of labour, especially of those unable to gain employment in the formal sector, is estimated to be as large as 57.9 percent of the country’s GDP.
The informal sector consists of over 17 million businesses and enterprises, and contributes significantly to job creation, according to the National Bureau of Statistics (NBS)
Analysts say between July 2012 and June 2014, 2.5 million jobs were created, with the informal economy contributing the most at 1.4 million (57 percent), the formal economy returning 40 percent, and the public sector making three percent contribution.
“We have 37 million SMEs in the country with about 400 registered and only about 120 paying taxes. You can see that many refuse to pay tax and even to register, but with five-year tax holiday, the business would have grown and broken even. After this, the business can start paying taxes,” said David Omololu Aiyeola, executive secretary, Nigerian Association of Small &Medium Enterprises (NASME), Lagos Chapter, in an email response to questions.
Aiyeola stated that Ghana was already giving tax holidays to start-ups, which Nigeria investors in Ghana were benefiting. “If it can happen in Ghana, then it can also happen in Nigeria. A Nigerian fashion icon was given 15 years tax holiday in Ghana and now he has a very bid fashion business in Ghana and Nigeria.”
Josephine Okojie