AUGUST 19, 2016 – Federal government has been urged to grant five-year tax amnesty to the Micro, Small & Medium Enterprises (MSMEs) in the country as a means to galvanise them, especially into aligning the small businesses with the formal sector tax related matters.The Nigerian Association of Small and Medium Enterprises (NASME), made the call as part of its advocacy and mediation drives to broker compromise between the government and the MSMEs, especially on taxation.
Meanwhile, the Nigerian Association of Small and Medium Enterprises (NASME), Nigeria in collaboration with Deloitte, with the support of Enhancing Nigerian Advocacy for a Better Business Environment (ENABLE), on Thursday officially released an advocacy paper targeted at proffering a better tax framework for the MSME sector of the Nigerian economy.
According to NASME, statistics shows that Nigeria has currently has over 35 million small business, who account for 90% of job creation, contributing about 50% of the economic growth, regrettably, the sector are heavily taxed and allowed to grapple with multifaceted challenges.
The informal economy or grey economy which is usually regarded as part of the economy that is neither taxed, nor monitored by any form of government, the experts said, deserves to be treated fairly and included into the activities of the formal sector economy.
Speaking during public presentation of Tax Advocacy Paper aimed at MSMEs in Nigeria, a work executed by Deloitte Nigeria on behalf of NASME, Fatai Folarin, chief executive officer of Deloitte Nigeria, said in spite of government’s efforts and the clout garnered by MSMEs, MSMEs have not performed creditably well and hence have not played the expected vital and vibrant role in the economic growth and development of Nigeria.
He said the report findings show an existing or perceived disconnect between policy intent and the realities of MSMEs.
“The need to bridge the gap between policy intent and MSME reality has necessitated this position paper. The drivers for this position paper are: Encouraging interaction and adoption of a concerted approach to issue of strategic importance to the development of MSMEs in Nigeria; Establishing a frame work that ensures effective realization of government objectives and targets for MSMEs; and Creating an active platform for policy advocacy on issues affecting MSMEs in Nigeria”.
The Tax Advocacy paper focuses on key objectives as the challenges faced by MSMEs in Nigeria; bridging tax and regulatory gaps in relation to MSMEs – Our Recommendations and benefits to the government.
Also speaking, Oluseye Arowolo, partner, Tax & Regulatory at Deloitte Nigeria, said that the executive summary of the paper, it has clearer, “apart from where the policy defined MSMEs, the policy does not specifically address nor differentiate the needs of each segment, which is principally the disconnect that needs to be addressed”.
He said, “Each category of MSME has its own peculiar characteristics and problems which require targeted policies to address them. If you look overview of MSMEs in Nigeria, the country’s economy is largely driven by MSMEs with 96% of Nigerian businesses falling under this category; The MSME sector accounted for 84.02% of the total labour force in Nigeria in 2013; MSMEs contribution to the Nation’s Gross Domestic Product in nominal terms stood at 48.47% in 2013; MSMEs contribution to export stood at 7.27% in 2013 and MSMEs, the world over are said to generate about 90% of employment in the private sector. So, we started work on this position paper about two years ago. Since then so many things have changed, however, there are current events in the country that show the releasing of this position paper is apt and should be adopted by the Government to cater for this segment of the economy,” Arowolo said.
The document jointly presented by NASME, Deloitte and ENABLE identifies that currently, only about 27.7% of registered businesses in Nigeria pay taxes out of the recorded number of 450,000; MSMEs account for a significant portion of the remaining 72.3%, hence “an improved tax and regulatory framework will result into widened tax net to accommodate these MSMEs as a result of the VDP and simplified tax registration process”.
“If the Total tax revenue generated by the revenue authorities in 2015 was N3.7bn; The target tax collection in 2015 was N4.6bn, government granting MSME requests will encourage the level of compliance and consequently, more revenue generation. For instance, unemployment rate and GDP in the 1st quarter of 2016 are recorded at 12.1% and -13.7% respectively. Enactment of preferential tax rules and other tax incentives requested will boost investment and encourage more players in the sector. Consequently, increased employment, more goods being produced for export and increased GDP,” he said.
The Partner, Tax & Regulatory at Deloitte Nigeria added that the paper recommends for the Government to have special MSME tax regime “where MSMEs will not be assessed under the provision of either PITA or CITA, but on a new tax and regulatory framework dedicated to MSME in clear and definite terms”.
To this end, Prince ‘Degun Agboade, president/chairman of Council of NASME thanked Deloitte for executing the work seamlessly, adding that the findings are critical to the members.
According to Agboade, MSMEs in Nigeria today are faced with challenges ranging from “Government’s perceived lack of sensitivity; Rigid and stringent requirements for start-up business; Over-regulation; Insufficient access to funds/finance and lack of awareness; Inefficiency in the administration of government’s incentives; Multiple and high taxes, among others.
He said, “In a situation you present you bankers with collateral worth N200million and they say you can only borrow N12million, whereas N50million was approved for you, does it augur well for such manufacturers? Manufacturers are going through turbulent times especially in sourcing for funds, and tax system is not harmonised. We want the Government to look into this. So, the call for tax amnesty is justified, because it is going to inject life into the MSMEs and help the government to increase tax earnings”.
Nodding in agreement, Ladi Jemi-Alade, zonal vice president, South-West at NASME said reiterated that “MSMEs are able to manufacture products up to international standards for export which will boost foreign trade, and increased innovation and technology as MSMEs tend to be major drivers of innovation while achievement of wider socio-economic goals such as poverty alleviation”.
“That is why we are saying 5-year tax amnesty for the MSMEs will bring about a programme for voluntary disclosure of records. For instance, most companies are indebted to Corporate Affairs Commission (CAC) and the FIRS, because the penalties are stringent. So, companies need help. They need to be granted amnesty to voluntarily disclose their records and the inequalities in the tax system must be addressed”.
He said that stakeholders’ view is that the current disconnect in policy and the reality of MSMEs must be eliminated through appropriate combination of options, expressing their desire “to assist government to appreciate expectations from the MSME sector has necessitated the preparation of this sector-wide position paper. Stakeholders within the MSME sector through NASME are prepared to engage and dialogue further with Government at all levels”.
Also, Kevin Conroy, team leader, Enhancing Nigerian Advocacy for a Better Business Environment (ENABLE), expressed confidence that if implemented, provisions in the paper will help to unleash the potential of MSME for the benefit of Nigeria’s economy.
He said that is has become imperative for government to revisit its approach to the challenges of the MSME sector, particularly by reducing the tax burdens on small businesses.
