Mr Gideon Etireri is a Fellow of The Institute of Chartered Accountants of Nigeria (ICAN); and a Fellow of the Chattered Institute of Taxation of Nigeria (FCTI).

He is also an Associate of the Chartered Management Institute- UK (ACMI); a Member – International Tax and Investment Centre, USA. He holds an MBA in Finance from the University of Liverpool – UK.

He started his accounting career at world’s leading accounting firm, Deloitte, and now serves at Expro Group where he has held several positions including Region Tax Manager Sub-Saharan Africa; Region Finance Manager Sub-Saharan Africa; Region Finance Accountant, Sub-Saharan Africa; and Country Finance Manager.
At a recent episode of the Access Bank SMEDigest radio program on Classic FM 97.3, Mr Etireri proffered solutions to the challenges faced by small businesses in meeting tax obligations in Nigeria. Below is the excerpt.

Anchored by Emeka Anaeto, Business Editor

Can we start by defining businesses categorized as MSMEs (Micro, Small and Medium Enterprises) in Nigeria, especially in the context of tax administration in Nigeria today?

I’m not going to quote tax laws, but generally, lets going to look at some implications of the tax reforms, bringing it down to the ordinary small to medium enterprises.
But first of all, what is tax? We all know it’s a levy that is paid by individuals and organizations to government or agents of government. But really tax in any clime, in any environment, is a civic duty.
They say there are two things that you can easily predict in life. One is death and the second one is tax. So we can’t run away from it.
So it’s a good thing to talk about it because it’s an inevitable responsibility.
And because it is inevitable it is better to plan for it. That is why people plan for their death. They have insurance. So you also plan your tax so that you can take advantage of provisions available within the tax laws to minimize the cash tax payment of Small and micro businesses, our emphasis in this brief discussion. And I believe that it wont be a big issue when you plan for tax incidence and payments..

And then what is MSMEs?

I would like to do the definition in the local parlance so that a street person will understand it. Micro scale businesses are businesses that employ between one to nine people, for small enterprises, they are entities that employsbetween, maybe, 10 to 49. Then we talk about the medium scale entities; these employs between 50 and 250 people
But for today, I would like us to reduce the discussion to the micro and small businesses, which is something that is very prominent in our environment.

Some stakeholders believe that the tax system in Nigeria, both formal and informal, isadverse. So as you want to focus on micro and small businesses, what do you think about the issue of multiple taxation?

First of all, multiple taxation has been a bane in our the Nigeria tax system. Small, micro, medium and even in large companies, all have the problem of multiple taxation. Unless there is a deliberate focus using the Nigeria legislation to eliminate multiple taxation, the problem may persist for a long time. This is also the reason why many small scale businesses evade tax by using unconventional methods to settle taxes.
But beyond the multiple taxation, the government have incentives for small scale businesses, that can assist to avoid most of these double taxation, if they operate within the tax laws.
You might find out that most of the incentivesare not being utilized by small business owners ; they would rather complain.
Let me give you a very practical example; You put the air condition in this room so it will be cool for the equipment and the people here. But if the people remain outside this room, will theybenefit from the cooling ? This is what has happened within the Nigeria tax laws for small and micro businesess. The government created tax and other policies that encourage small scale businesses. However only formal or structured small scale businesses can benefit from the policies and tax incentives
Most Nigeria small businesses are not structured, they don’t have financial statements, no tax filing and they cannot access the benefit embedded in the government policies for small scale businesses.. So it’s like you make rule for the formal sector, but everybody that you are making the rule for are in the informal sector.

One of the incentives of the small busisinesses,is that revenue is below N25 million in a year, do not have to pay tax and do not have to file tax returns. But how do you aggregate the revenue of a business to know that revenue is below N25m in any year, if you don’t keep proper books of accounts .
There are so many small scale businesses thatmay make between N25m to N50m in an year ,but the non preparation of accounts may hinder their growth more that reduce their tax.
The result of this is no tax benefits and no opportunity to upscale their business to access more funding.
But what do you hear every day: blaming government for not helping small businesses.They have their businesses in a position that makes impossible the right access to government incentives.

Which would you think is the bigger ill, a lack of structure or a lack of information?
Both go side by side; they go together; because if you don’t have the information, you might as well be working blindly. Structure is what produce the information.
When information is not available to the small business, it is impossible to package the business to take advantage of available incentives. On the other hand, the information maybe available, but the structure to get it in a proper reporting manner may not be in place.
To provide solution to these two problems of structure and information, accountants and chartered accountants are available. They will help business owners to structure their businesses, so they understand the business in Naira and kobo; and also be able to use the information to access tax incentives, and other funding and upscaling opportunities.
There are several cloud accounting software available that can also be used to get these structures an information seamlessly. And today,small scale businesses can operate complete accounting structure with realtime information using clouding accounting software.

I don’t want to mention any name here because they didn’t pay me to advertise their products;but applications abound that can be adopted to run small scale businesses; some can extend their services to customer relation management.
With these applications, you have your businessdata, your business numbers, and you can make decisions, plan your tax and access incentive, etc.
I was telling a friend downstairs earlier today that there are two things in this life that don’t lie. One is God. And second one is data.

Is every micro and small business eligible to pay tax? And are there companies that are actually exempted from tax?
Basically,If you do business and you make profit, you are supposed to pay tax. But the government made it very easy for small businesses; if you run business and you don’t earn more than N25 million in a year, you are exempted from paying tax. Even if your profit is 90%.
Now, how many small businesses have this information and use it? Now, if they have the information, how many of the small businesses are structured to take advantage of this incentive.
But we keep blaming government. Our business environment think government is everything. In as much as I believe that government has a huge part to play to ensure small businesses do well, by improving on the business environment; the truth is that a lot of the small businesses too, are not doing their part;especially the so-called smaller or micro businesses.

What if a small business was incorporated a year ago, and they’ve had just maybe a couple of really good contracts or jobs as it were. Is that business eligible to pay tax and file tax returns as well?

A business is expected to prepare her accounts to know the state of her business activities. Now with when the business activities meet small business criteria from their accounts prepared, then the business will be exempt from filing tax returns and paying taxes.
Without accounts, how do you show that your revenue is within the threshold of tax returns and tax payment exemptions?
Filing accounts in most cases does not mean thebusiness will pay tax.
My recommendation to all businesses is that they must prepare accounts to determine the threshold of tax regime they fall into.
Most small businesses do not know that, even when they are exempt from paying tax, the losses incurred in any year can be carried forward to the years, where the revenue is more that N25m and profit made to pay tax. The loss brough from previous years can be used to offset the profit of those years thereby paying less tax or no tax .
Is it right to say that filing tax returns is somewhat similar to bookkeeping or recordkeeping?

Bookkeeping and tax returns are two different activities.
While bookkeeping is the statement of the business activities, which maybe used by the business owner/manager, bank and other investors; the Tax returns is a statement of tax payable from business results.
Tax return filing is also simplified now. The Federal Inland Revenue Service has made it such a way that you can file your business tax online from the comfort of your home.
There are simple processes to register yourbusiness with the tax authorities,if the business existed and no tax return has been made. On the other hand, new incorporated business now havetax ID with which a business can register for the online tax returns.

What are the tax implications or rather obligations of micro and small businesses
First obligation is to keep records of activities: Financial accounting records ( book Keeping). This obligation is to the owner or business manager.
Second obligation is file tax returns:
the tax man or tax authority would like to see the tax returns every year.

Now, there are penalties for non-compliance with Tax returns..
It doesn’t mean that if you file your tax return,then you must pay tax.
Filing tax return is a way of telling Ta authorities ‘I am in business’.
If there are losses: as mentioned earlier the losses can be caried forward to years where revenue is more than 25m and business profits arose.. .
A thirds obligation is to pay state government for personnel staff. In Nigeria, its Pay-As-You-Earn, which is PAYE.
As soon as the business commence operation, the business becomes an agent of the government to collect PIT from employees, as agent of government As an MSME, if you have employees more than 10, you are by law obligated to register them with the Social Security Service. We have the trust fund. We have so many of them around. And that Social Security is about the staff who contributes 8% and the company or the employer contributes10% of their gross salaries. That is one. Then also there are other taxes and levies where we talk about this multiple taxation. Those are the obligations. And those ones are a bit fluid depending on your location and depending on the state you in which you operate.

And then how can the MSMEs position themselves and meet these obligations?

The first is having proper record keeping. . And some of them will say, ‘‘I can’t afford it’’. You can get the service of an accountant. There are a lot of them all over Lagos, all over Nigeria.
The Institute of Chartered Accountants of Nigeria, ICAN, have quite a number of them. And you could actually go to the ICAN website and look for the names of those in practice. And from there, ask for a service to prepare set ofaccounts
That is the way you could meet the management report and financial accounts for tax and lenders purposes.. PAYE obligation can be outsourced to a qualified ICAN member, and they will do a good job.

Is there a particular time when tax is filed?

Yes. There are particular times when taxes are filed. Like I said, it is every year, six months from the end of your financial year in Nigeria, as from June. This year, the Federal Inland Revenue Service (FIRS) extended to the end of August, just to allow people to time to file their tax returns.
However, if you don’t file, there’s also a penalty for not filing on time. It may cost a few Naira to hire an accountant,but failure to file may have consequences that far outweigh the costs of an accountant.
Now, the FIRS have been very gracious in recent times they waived penalties for returns that were due in June 2023. The penalties were waived, and filing deadline extended to 31stAugust 2023.

You would agree with me that a large number of businesses do not know exactly how tax is computed or how to work it out.And this is where the accountant earns his wages. But is it something that perhaps one can do without the help of an accountant?

The Tax authorities (FIRS) has made it easier for business owners to file their accounts themselves from the comfort of of their homes/offices. However, there are tax technicalities that a qualified accountant can use to save the business more cash tax. That savings when compared with what the accountant will earned. It will be better to use a qualified accountant.
Can you give us a general overview of tax incentives in Nigeria? And what are the existing incentives currently available to micro and small businesses?

Time will not permit me to list all the incentives but that is neededis to look back at successive government pronouncements; everyone has given incentives to small and medium scalebusinesses. Some have expanded it and made it such that more people can come into the bracket.
One of such is N25 million revenue exempt from tax. Businesses are exempted from paying tax, even if your profit is 100%.
In the agro sector, Micro and small businesses are given pioneer status. The Pioneer status is that which exempts businesses from paying tax for about three to five years.
Farmers in Agric business maybe tax exempt or enjoy pioneer status. But do they have the structure to report it.

So what can be done to ensure that MSMEs enjoy these incentives and drive economic growth in the process?

The most important process to attract small business incentives is to ensure first of all the proper financials are kept and prepared
Banks and financiers will be able to access the business financials to see where they can provide small scale funding, upscale business, etc.
File tax returns as when due.
Get a qualified account to review and report the business financials. The benefits outweigh the costs.