Nigeria: Tax Policy On SMEs In Nigeria – How Fair?

Small and medium enterprises (SMEs) are the bedrock of the Nigerian economy. They serve as an important source of employment generation, economic dynamism, competition and innovation; thus contributing to national growth and poverty alleviation. In order for SMEs to thrive, there is need to create a favourable business and regulatory environment. Most large companies have their roots in SMEs. In other words, the future large corporations in developing countries like Nigeria, are present day SMEs that need to be nurtured.

The significance of contributions of SMEs to economic growth is seen in more developed climes where their potentials have been successfully harnessed. For instance, SMEs accounted for about 20% of patents (a measure of innovation), in bio-technology-related fields in Europe in 2014. SMEs are also known to account for over 95% of businesses, 60-70% of employment, 55% of gross domestic product (GDP) and generate the lion's share of new employment.

Also, there are evidences to support the contributions of SMEs to economic development in many developing countries. However, the Nigerian government tends to focus more on larger corporations, with foreign investments, to the detriment of SMEs, whose activities are wrongly perceived to have insignificant impact on the economy. This perception had since been debunked by evidence from antecedents of OECD countries, suggesting that SMEs have a high propensity to transform a country's economy if a conducive environment is created for them to grow through appropriate regulation and tax policies.

In Nigeria, SMEs are subjected to multiple taxes by the different tiers of government, each with its own rigorous process and significant compliance cost. Considering the size of their operations, the absence of harmonized tax regime increases the strain on cash-flow and other limited resources of SMEs when compared to large corporations. SMEs are also regulated by several government agencies; thereby leading to significant regulatory compliance cost, which in most cases are duplicated.

Though, there are numerous incentives and support facilities available to SMEs in Nigeria (e.g. the Federal Government Special Intervention Fund for MSMEs, Bank of Industry and the Central Bank of Nigeria's Intervention Fund, etc.), access by SMEs to such incentives and facilities seems to have been hampered by bottlenecks. Also, lack of awareness of these government funds, absence of supportive environment and poor access to finance have reduced the competitiveness of SMEs in Nigeria.

The main objective of the new National Tax Policy (NTP) is to establish a robust and efficient tax system in Nigeria with focus on legislative amendments to reduce the tax burden on MSMEs. The NTP also proposed reduction of corporate tax rates and introduction of tax registration thresholds as an incentive to encourage compliance and protect MSMEs. However, taxes still appear to be a major constraint to the development of these SMEs in Nigeria.

For instance, businesses that make profits are usually subjected to multiple taxation in their first three years of commencement due to the rules for taxation of a new business; thereby increasing the risk of failure of SMEs within the first few years of business. Also, exemption of companies with at least 25% imported equity from minimum tax is discriminatory to Nigerian owned businesses. 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 SMEs are not able to adequately benefit from tax incentives due to the small size of their operations.

The challenges highlighted above raise some important questions about the policy direction vis-à-vis the reality of SMEs in Nigeria; such as;

  • Does the tax policy encourage investment by SMEs?
  • How well can the current tax policy encourage successful transition from the informal to the formal sector?
  • Are basic public services (healthcare, infrastructure, security, etc.) provided to these SMEs and their employees despite the taxes collected from them?
  • Is the Nigerian Government prepared to consider increasing tax incentives and exemptions, that will not only attract investors who are potential taxpayers but also encourage voluntary compliance, which would ultimately lead to expansion of existing business interests of the SMEs in Nigeria?

In an attempt to provide answer to the above questions, some stakeholders have suggested the need for special and preferential tax regimes for SMEs in view of the difficulties in raising finance, inherent disadvantaged tax system and high costs of tax and regulatory compliance. Tax policies should be designed in such a way that they do not only directly affect SMEs but also indirectly push them to grow. For instance, provision of finance for SMEs may be encouraged by granting exemptions from business tax for financial institutions that provide guarantee for loans to SMEs.

Policies can also be implemented to ensure that businesses in the informal sector regularize their tax status to have access to finances and tax incentives. This way, business owners are able to see the gains of moving from the informal sector to formal sector. This would also translate to a much wider pool of taxpayers for the government.

There is no gainsaying that the current NTP is well intended to support and protect the interest of SMEs; albeit the intent is yet to translate to reality for SMEs. Therefore, efforts must now be channeled towards addressing the specific needs of SMEs from a perspective of tax policy if we are to realise their potentials in Nigeria.


1 Research Journal of Finance and Accounting Vol. 2, No 2, 2011 – Tax Policy and the Growth of SMEs: Implications for the Nigerian Economy

2 Eurostat (2014), Patent Statistics at Eurostat. Mapping the contribution of SMEs in EU patenting. Eurostat Manuals and Guidelines, Luxembourg,

3 Mediterranean Journal of Social Sciences, Vol 5 No 7, May 2014

4 Organisation for Economic Cooperation and Development

5 Micro, small and medium enterprises

6 Revised in February 2017

7 A lot of SMEs are believed to fall under this category

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions