The Nigerian government has moved to ensure the exemption of small businesses with an annual turnover of less than N25 million (US$ 69000 or ZWL$1179900 at the interbank rate) from paying company income tax. The new finance bill contains a raft of measures that are aimed at bringing informal operators into the formal sector. Companies that have turnovers of N100 million (US$276000 or ZWL$4719600) will pay 30% income tax while those earning between N25 million and N100 million will pay 20% income tax. The bill has ascended to the President to be signed into law.
Nigeria’s Minister of Finance, Budget and National Planning, Zainab Ahmed, said “Our assessment is that any business that has a turnover of less than N25m needs that break, not being taxed so they can invest in their businesses. And we reduced the tax for medium-size businesses from 30 per cent to 20 per cent so they can have more resources that they can plough back in their business. These are the largest employers of labour. The federal and state governments have a total labour force of less than one per cent of the population.”
“Not only will small businesses be able to do more because they are not paying taxes, but we are also working together with the trade authorities to also encourage people in the informal sector to become formalise because they will see other businesses like them that are not registered doing well. Their productivity will increase, they will employ more Nigerians and at the end of the day, they will grow to the level of a medium-size business and begin to pay revenue,” Ahmed said.
The move by the Nigerian government has been heralded by many across Africa, particularly entrepreneurs as a step in the right direction and something that other governments should look to emulate. Giving startup and fledgeling businesses a fighting chance in tough economic conditions would certainly be welcome. Also, the idea of encouraging formalisation and compliance in the early stages of a business is welcome. Zimbabwean entrepreneurs would certainly benefit from a similar move within our borders.
We must also look at the idea critically and consider our own circumstances. Firstly if entrepreneurs do not get used to the idea of paying taxes early on, their will to pay tax when companies have grown is questionable. Secondly, something Zimbabwean entrepreneurs can relate to is that tax is not the greatest concern of small businesses, a stable environment is of greater concern. Theoretically higher tax revenue for governments would lead to a better environment or at least should. Which brings us to our third issue which is the government’s track record with the use of tax revenue in the past. Perhaps citizens and business owners would be more forthcoming in a system that makes better use of tax revenue.
Nigeria will prove a brilliant case study, particularly for Zimbabwe on the idea of income tax exemption for small businesses. The Nigerian business climate has a lot of similarities with the Zimbabwean equivalent and it will show how effective if at all, the concept can be.