By Olukolade O. Ehinmosan1


A fundamental principle of taxation is certainty. In corporate tax terms, this presupposes corporate entities should be clearly informed about why and how taxes are levied. With the recent enactment of the Companies and Allied Matters Act 2020 (CAMA) and the serial introduction of annual finance Acts, the intent of the Federal Government of Nigeria to achieve this principle is plainly seen.

However, there appears to be some needless uncertainty on the corporate tax obligations of corporate entities especially Small and Medium Enterprises (SMEs) and Business Startups, on filing of audited financial statements at the Federal Inland Revenue Service (FIRS). This article examines this issue and concludes with some crucial recommendations.

The Issue

Generally, corporate entities have an obligation to file audited accounts (financial statements) along with their corporate tax returns to the FIRS.2 The presence of the word "audited" presupposes the compulsory appointment or engagement of an auditor for the filing exercise.

Meanwhile, section 394 of CAMA defines a "small company" as:

  1. A private limited liability company (LTD);
  2. Having an annual turnover and net asset value of not more than N120,000,000 (one hundred and twenty million Naira) and N60,000,000 (sixty million Naira) respectively;
  3. Having no foreigner, government, government corporation or agency (or their nominees) as a member; and
  4. With the directors holding at least 51% of the shareholding (if it is a company LTD by shares).

Section 402(1) & (2) of CAMA exempts the following companies from appointing an auditor:

  • Small companies.
  • A company that has not carried on any business since its incorporation, such company not being an insurance company or a bank.

In sharp contrast, the Finance Act 2019 (FA19) provides as follows:

  • "Small company" means a company that earns gross turnover of N25,000,000 or less
  • "Medium-sized company" means a company that earns gross turnover greater than N25,000,000 but less than N100,000,000
  • "Large company" means any company which is not a small or medium-sized company.3

Essentially, CAMA recognizes both small and medium-sized companies (as defined by the FA19) as small companies. This definitional variance caused uncertainty especially regarding the type of accounts to be filed along with the corporate tax returns of a company whose turnover is above N100,000,000 but does not exceed N120,000,000.

Realising this, the draftsman attempted to provide relief by the enactment of the Finance Act 2020 (FA20). Section 16(b) of the FA20 sought to amend section 55 of CITA by introducing a fresh subsection 7 which stated as follows:

"Notwithstanding anything contained in this section, the Service may by notice specify the form of the accounts to be included in a tax return, instead of audited accounts specified in subsection (1)(a) in respect of small and medium companies as defined under this Act."


By this amendment, it became apparent that small and medium-sized companies (as defined by FA19) were no longer (supposed to be) required to either appoint auditors or file audited financial statements. However, the FIRS in practice does require small and medium-sized companies to file audited financial statements, instead of a special type of account along with their income tax returns.

Interestingly, the Companies Regulations 20214 prescribes that:


A company qualifies as a small company in a financial year if –

2) Its turnover is not more than the amount prescribed by the Finance Act from time to time."

A careful combined reading of CAMA 2020 and the Finance Acts ought to reveal that private limited liability companies with a gross turnover of N120,000,000 and below are not required to file audited financial statements.

Moreso, there is loud silence in the law at the moment regarding the type of account to be filed (alongside income tax returns) by medium-sized companies whose annual gross turnovers fall between N100,000,000 and N120,000,000.


Clearly, foreign membership of a company means that such company is not small. In as much as the amendment introduced by FA20 sought to make the uncertainties regarding the type of account to be filed alongside companies' income tax returns, the gap between the letters of the law and practice needs to be plugged. As a matter of fact, this writer has respectfully observed a typically Nigerian legislative habit of neglect or failure by law makers to give substantial consideration to the entire legal framework and policy objectives in the process of introducing new tax laws, rules, and regulations.

Therefore, it is highly recommended that the incoming Finance Act 2022 (FA22) clarifies these uncertainties. The incoming FA22 should harmonise relevant provisions of CAMA 2020, FA19 and FA20 as explained above. Moreover, the conflict between the definitions of a small company by CAMA and its subsidiary legislation (the Companies Regulation) should be corrected with urgent dispatch. Whilst it is arguable that both provisions do not necessarily conflict, the possibility of avoidable litigation means that the laws require much-needed clarity.

In so doing, the law makers should not only consider extant tax legal frameworks and policy objectives but also timeously involve stakeholders drawn from a wide range of tax disciplines. The time factor stated in the previous sentence is as crucial as the legislative process itself. Through this, the intendment of government to cushion the lingering effects of Covid-19 on startups and small and medium enterprises (SMEs) will be properly actualized and sustained.


1. Associate, Tax, Real Estate and Succession, SPA Ajibade & Co, Lagos, Nigeria.

2. Section 41 of the Companies Income Tax Act (CITA).

3. Section 22 of the FA19 which amended section 105(1) of the Companies Income Tax Act (CITA).

4. A subsidiary legislation of the Companies and Allied Matters Act 2020.

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.