‘Heavy Tax Burden Kill SMEs’

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Dike Onwuamaeze
The Oba Alara-Elect of Ilara Kingdom, Epe, and former Chairman of Lagos Inland Revenue Services (LIRS), Prince Olufolarin Ogunsanwo, has linked the high mortality rate of start-ups to heavy tax burden.
Ogunsanwo, said this recently in Lagos State, while presenting the keynote address at symposium organised by the January 9 Collective (J9C).

According to him, “in the case of SMEs, tax must be imposed in such a way that put their income and need for survival into consideration.”
He added: “According to the Small and Medium Scale Enterprises Development Agency (SMEDAN), 80 per cent of the SMEs die before their fifth anniversary. Among the factors responsible for these untimely close-ups are tax related issues ranging from multiple taxations to enormous tax burdens among other issues.”

The former LIRS boss recalled that one of the objectives of the new National Tax Policy (NTP) was to reduce the tax burden on the SMEs. He, however, noted that heavy tax burden still appeared to be a major constraint to the development of SMEs in the country.
“More notably, it discourages investment and increases the risk of failure for companies in periods of little or no profitability in the case of SMEs.

“In the same vein, a good number of the SMEs are not able to adequately benefit from tax incentives due to the small size of their operations,” Ogunsanwo said.
He noted that these challenges raised some important questions about the policy direction vis-à-vis the reality of the SMEs in Nigeria. These questions, according to him, are: “Does the tax policy encourage investment by SMEs; How well can the current tax policy encourage successful transition from informal to formal sector and are basic public services such as healthcare, security infrastructure, etc., provided to these SMEs and their employees despite the taxes collected from them?”

He added that these questions would be answered adequately by recognising that, “there is a need for special and preferential tax regimes for the SMEs in view of the difficulties in raising finance, inherent disadvantaged tax system and high cost of tax and regulatory compliance.”

He added: “Tax policies should be designed in such a way that they do not only directly affect SMEs but also indirectly pushes them to grow. For instance, provisions of finance to SMEs may be encouraged by granting exemptions from business tax for financial institutions that provide guarantee for loans to SMEs.”
According to Partner, Highnet Resources Limited, Vivian Ani, SMEs would still be brought into the tax net via payment of 7.5 per cent VAT on imported goods even though businesses with turnover of less than N25 million were exempted from tax payment in the Finance Act.

“The number of SMEs that would be exempted from income tax would not be as many as we will think. Moreover, every Nigerian consumer will pay more tax indirectly due to the 50 percent increase in VAT,” Ani said.
Similarly, the Managing Director, Mayflora Consulting Limited, Henry Akwara, observed that the cost of compliance to the new Finance Act would be an issue for SMEs, due to the high cost of hiring tax consultants.

He suggested that the government or the NGOs should reduce the high cost of compliance by providing a pool of consultants that are readily available that the SMEs will have access to at reduced cost.
On his part, the Chairman, Proshare Nigeria Limited, Femi Awoyemi, said government might not make much money from tax because of low productivity in the economy.

Awoyemi, advised government to focus on manpower development, which would enable Nigerians to earn more and pay more income tax. He said one of the reasons for low tax revenue in Nigeria was government’s preoccupation with tax collection rather than tax administration. The people who earn the most pay the least in tax, he said.
Also, an Assistant Director, Personal Income Tax of the Lagos Internal Revenue Service, Igho Otejiri Orinru, enjoined tax payers to pay their tax as and when due, in order to enable governments, fulfill their obligations.