The Mendel’s stakeholder’s theory made us to understand that of the different interest group in any corporate entity, each party is interested in the corporate entity to an extent in which its stake is fostered.
Take the stake or interest out and you won’t see them associating with such entity.
A business entity is a perfect model of this. Each stakeholder i.e. the government, shareholders, employees among others are interested in the company and act in like manner as to foster their interest in the company which often time do not expressly align with that of other stakeholders. The government’s priority is taxation while the employees are interested in higher pay plus job security and the shareholders are interested in capital appreciation and appreciable returns from their investment. It’s obvious what impact these stakes by different stakeholders have on the profit of the business and their individual interest in the business.
Without digging further into the stakeholder’s theory, we shall be considering a major factor which determines a business level of profitability irrespective of its size nor geographical coverage i.e. TAXATION.
However, in the context of this writeup, we shall be looking at Taxation and its impact on SMEs (Small and Medium Scale Enterprises) in the Nigeria business environment.
Taxation is a compulsory levy imposed by the government on individuals or corporate entities.
As posit by one of the early tax proponents, no individual nor entity is under an obligation to prepare its financials such that the tax man can freely rake out any available fund in the business.
SMEs plays a major role in helping government to accomplish one of its core goals of full employment or reducing unemployment to the minimum. In the light of this, the Nigeria government has over time used several fiscal policies i.e. taxation to stimulate the continuous existence and profitability of these businesses.
The Finance Bill was fully signed into law by the government this year (2020) and one of its major goal is to foster the sustainability and profitability of SMEs. In the light of this, let’s consider the position of the Finance Act on the taxation of SMEs.
The 25 Million Threshold:
Small Business(es): The Act specifically exempt all business with annual turnover of less than 25million from paying company income tax (CIT). Invariably, business in this category are charged CIT at 0%.
Medium sized business(es) with turnover between 25 million to 100 million are charged lower rate of CIT at 20%.
Value Added Tax:
In a bid to enhance their price competiveness with larger organizations, the government also allows this firms to exclude VAT on their products or services which are VATable. That is firms under the 25 million revenue threshold can file 0 rate of returns for VAT.
Withholding Tax is a form of advance payment deducted at source and used later to reduce tax liability. By implication, since firms under the 25 million thresholds are expected to file 0% of CIT at their financial year end; it can also be posited that their transactions with third parties should not be subject to WHT charges. This position is however arguable on issues surrounding compliance on the part of the SME’s customer.
Nigeria government understands the crucial role which SMEs plays in the economy. Hence the decision to enact all the aforementioned position in their favour. As you go on with your business always remember that compliance to tax requirements is better and less expensive to non-compliance. As a matter of fact, tax evasion is a punishable offence under the Nigeria law while tax avoidance is a conventional practice provided it isn’t over stretched.
Daniel Banjo AAT, ACA