As Nigeria continues to position itself as one of Africa’s leading economies, Small and Medium-sized Enterprises (SMEs) play a pivotal role in driving growth, innovation, and employment opportunities. In 2019, the Nigerian government introduced the Finance Act, a significant legislation aimed at reforming and modernizing the country’s tax system. This article explores the key implications of the Nigeria Finance Act 2019 on SMEs and provides valuable insights to help business owners navigate the changes and optimize their financial strategies.
1. Lower Corporate Tax Rates for SMEs:
One of the most significant benefits of the Finance Act 2019 for SMEs is the reduction in corporate income tax rates. Before the Act, SMEs were subject to a standard tax rate of 30%. However, with the implementation of the Act, businesses with an annual turnover of ₦25 million or less now enjoy a lower corporate tax rate of 20%. This measure aims to ease the tax burden on smaller enterprises, freeing up resources for reinvestment and expansion.
2. Expansion of VAT Threshold:
The Finance Act 2019 also brought about changes in the Value Added Tax (VAT) threshold, benefiting SMEs engaged in the supply of goods and services. Previously, businesses with an annual turnover of ₦5 million were required to register for VAT. Now, the threshold has been increased to ₦25 million, providing relief for many smaller businesses from the administrative burden of VAT registration and compliance.
3. Pioneer Status Incentives:
The Nigeria Finance Act 2019 introduced an extended incentive for SMEs classified as “Pioneer Industries.” These industries can now enjoy a tax holiday for an initial period of three years, renewable for an additional two years, subject to meeting specific criteria. This incentive encourages SMEs to venture into strategic sectors and supports them during the critical early years of operation.
4. Capital Allowances and Investment Deductions:
Under the Act, SMEs can benefit from enhanced capital allowances and investment deductions. The Act allows for an investment deduction of 10% on qualifying plant and machinery, further incentivizing businesses to invest in essential assets and modernize their operations. This provision supports SMEs in upgrading their infrastructure and increasing productivity.
5. Tax Relief for Startups:
Recognizing the importance of startups in driving innovation and job creation, the Finance Act 2019 introduced measures to foster their growth. Startups are now exempt from paying education tax (2%) for the first three consecutive years of operation. This exemption helps alleviate the financial burden on young enterprises, enabling them to channel resources into business development.
6. Ease of Doing Business and Compliance:
The Nigeria Finance Act 2019 also introduced various measures to enhance the ease of doing business for SMEs. These measures include simplified tax compliance procedures, faster tax dispute resolution mechanisms, and the introduction of technology-driven processes for tax administration. Such reforms aim to reduce bureaucracy, save time, and promote a more business-friendly environment for SMEs.
The Nigeria Finance Act 2019 represents a turning point in the country’s tax landscape, particularly for Small and Medium-sized Enterprises. The Act’s provisions offer substantial benefits to SMEs, including lower corporate tax rates, an expanded VAT threshold, and various tax incentives. By taking advantage of these opportunities, SMEs can unlock their full potential for growth, sustainability, and contribution to Nigeria’s economic development.
For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.