The informal sector has long been a significant contributor to Nigeria’s economy, providing employment opportunities, goods, and services to a substantial portion of the population. Recognizing the importance of this sector, the Nigeria Finance Act 2019 introduced several provisions that have implications for informal businesses. In this article, we will explore the key impacts of the Finance Act 2019 on the informal sector and the implications for small-scale businesses and entrepreneurs.
1. Registration and Taxation of Informal Businesses: One of the notable changes introduced by the Finance Act 2019 is the requirement for informal businesses to register for tax purposes. Previously, many informal businesses operated without formal registration, making it challenging for tax authorities to track their activities. With the new provisions, informal businesses are now required to register and obtain Taxpayer Identification Numbers (TINs).
2. Digital Tax Transactions: The Act also extends its reach to digital transactions, which are prevalent in the informal sector. The introduction of electronic tax transactions means that small-scale entrepreneurs involved in e-commerce and other digital activities must now consider their tax obligations and remit taxes on eligible transactions.
3. Simplified Tax Procedures: To accommodate the informal sector’s unique characteristics, the Finance Act 2019 introduced simplified tax procedures and reduced tax rates for small businesses. This includes a lower turnover threshold for value-added tax (VAT) registration, making it easier for small businesses to comply with tax regulations.
4. Incentives for Micro, Small, and Medium Enterprises (MSMEs): The Act provides incentives for Micro, Small, and Medium Enterprises (MSMEs), many of which operate in the informal sector. These incentives include reduced income tax rates and exemptions for businesses with an annual turnover below a specified threshold. These measures aim to promote the growth and development of small businesses.
5. Access to Finance: The Finance Act 2019 recognizes the challenges faced by informal businesses in accessing finance. To address this issue, the Act provides incentives for financial institutions to lend to MSMEs by offering preferential tax rates on income derived from such lending activities. This can potentially make it easier for small businesses to access the capital they need for growth.
6. Compliance and Education: The Act also places an emphasis on tax compliance education for informal sector businesses. Government agencies are tasked with providing guidance and support to help informal businesses understand their tax obligations and navigate the new tax landscape.
The Nigeria Finance Act 2019 has introduced several changes that impact the informal sector of Nigerian businesses. While these changes bring formalization and increased tax compliance to the sector, they also offer incentives and simplified procedures to support the growth of small businesses and entrepreneurs. By embracing the changes and leveraging available incentives, informal sector businesses can contribute to Nigeria’s economic development while ensuring responsible tax practices. The Finance Act 2019 represents an opportunity for the informal sector to formalize, access financial resources, and thrive in a changing economic landscape.
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.