
Introduction:
Small and Medium Enterprises (SMEs) are the backbone of Nigeria’s economy, driving innovation, creating jobs, and contributing significantly to economic growth. Recognizing the vital role played by SMEs, the Nigeria Finance Act of 2019 introduces a range of tax incentives to support their development and foster a conducive business environment. As a leading accounting firm in Nigeria, we explore the tax incentives provided under the Nigeria Finance Act 2019 and their potential impact on SMEs.
1. Value Added Tax (VAT) Exemption Threshold:
The Finance Act 2019 raises the VAT exemption threshold for SMEs, providing significant relief for businesses with an annual turnover of 25 million Naira or less. SMEs falling within this threshold are now exempt from registering for and charging VAT on their goods and services. This measure aims to ease the administrative burden for smaller businesses and stimulate growth in the sector.
Implication: The VAT exemption threshold allows SMEs to retain a larger portion of their revenue, enhancing their competitiveness and financial sustainability. It encourages growth and investment in SMEs, contributing to job creation and economic development.
2. Export Expansion Grant (EEG) Scheme:
The Finance Act 2019 reinstates the Export Expansion Grant (EEG) scheme, which provides incentives to SMEs engaged in non-oil exports. Under this scheme, eligible SMEs are entitled to a grant calculated based on the value of their non-oil export volume. The reintroduction of the EEG seeks to promote export-oriented activities and reduce reliance on oil revenues.
Implication: The EEG scheme incentivizes SMEs to explore international markets and diversify their revenue streams through non-oil exports. By accessing the grant, SMEs can improve their competitiveness in the global market and boost foreign exchange earnings for Nigeria.
3. Pioneer Status Incentive:
The Finance Act 2019 extends the pioneer status incentive to SMEs, offering qualifying businesses a tax holiday for an initial period of three years. SMEs engaged in pioneer industries that contribute to economic development and technology transfer may be eligible for this incentive. The pioneer status provides relief from corporate income tax, allowing SMEs to channel their resources towards growth and expansion.
Implication: The pioneer status incentive encourages SMEs to invest in priority sectors and innovative industries, supporting economic diversification and sustainable development. SMEs can take advantage of the tax holiday to strengthen their competitiveness and establish a solid foundation for long-term success.
4. Minimum Tax Exemption:
The Finance Act 2019 exempts SMEs with an annual turnover of 25 million Naira or less from paying minimum tax. Minimum tax is typically based on a percentage of gross turnover and applies regardless of profitability. By exempting qualifying SMEs, the Act reduces their tax burden and provides breathing space during early stages of growth.
Implication: The minimum tax exemption provides a lifeline for SMEs during the critical initial years, allowing them to allocate resources strategically to expand their operations, hire more employees, and innovate.
Conclusion:
The Nigeria Finance Act 2019 demonstrates the government’s commitment to supporting SMEs as engines of economic growth and job creation. By providing tax incentives such as the VAT exemption threshold, the Export Expansion Grant (EEG) scheme, pioneer status incentives, and minimum tax exemption, the Act empowers SMEs to thrive in a competitive business environment.
As an accounting firm in Nigeria, we encourage SMEs to take advantage of these tax incentives and leverage them to boost their financial resilience and competitiveness. By understanding and optimizing these provisions, SMEs can chart a path towards sustainable growth, contributing significantly to Nigeria’s economic prosperity and development.
For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.