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Small business owners are complaining that tax compliance is becoming a major challenge because they do not have any single online platform where they can access information about the various tax remittances as small businesses.
“I am sincerely stunned because each time I visit the Federal Inland Revenue Services (FIRS) website I do not find all the requite information I need in order to be up to date with my tax liabilities. The next thing I find is that, a taxman comes to tell me I am in breach for haven missed a deadline and this applies to my friends too, who run businesses” Majiri Otobo, CEO KuiCare, a Nigerian natural hair products manufacturing company said.
Otobo represents a number of other small business owners who say they need more accessible information in order to take on their various tax liabilities efficiently.
A small business is defined as an independent business with fewer than 300 employees, 97 percent of businesses in Nigeria, where the owner is usually the manager. It operates in one or very few locations. It is not dominant in its field, and serves only a small market.
According to the Central Bank of Nigeria, Micro, Small and Medium Enterprises (MSMEs) in Nigeria are defined as per their asset base and number of staff employed. The criteria are an asset base between N5 million and N500 million, and staff strength between 11 and 300 employees.
Small companies outnumber large companies by a wide margin in Nigeria and employ a lot more people. They are also a large source of tax revenue for government and need better attention.While they are the driver of innovation and competition in many economic sectors, they are also the highest employer of labour when aggregated.
The total number of MSME’s is put at approximately 74 million businesses, which constitute 84 percent of the labour force, 50 percent of Gross Domestic Product (GDP) and 7 percent export.
To assist small and medium size businesses better understand their tax burden, below are some of the taxes for small business in Nigeria.
Business taxes are not just about income taxes. Just like people in general, businesses must pay several different kinds of taxes. If you are just starting your business, you need to know what taxes you are subjected to paying.
Income tax
All businesses must pay tax on their income. This means that a business must pay tax on the profit of the business. How that tax is paid depends on the form of the business.
Small businesses (sole proprietors and single-member Limited Liability Companies) owners pay taxes on their personal income tax returns. Company Income Tax (CIT) is payable only to the federal government.
State governments collect income taxes of individuals and unincorporated entities, while local governments are only allowed to collect levies and rates but not income tax.
Self-employment tax
Self-employment tax is a type of tax primarily for individuals who work for themselves. Self-employment taxes are paid by sole proprietors and partners based on the income of the business. Because business owners are not employees, there is no pay to withhold these taxes from, so self-employment tax is the alternative.
LLC owners also must also pay self-employment tax. Owners of corporations who work as employees do not have to pay self-employment tax.
Sales tax
Sales tax also known as Value Added Tax (VAT) is required to be collected by merchants in most states and paid to the state department of revenue. Specific products and services are sales-tax eligible and money must be collected and paid, and reports must be completed on a regular basis.
In Nigeria, the average sales tax rate charged on the purchase price of certain goods and services is 5 percent.
There are two main methods of calculating VAT: the invoice-based method and the subtraction or accounts-based method. Using the invoice-based method, sales transactions are taxed, with the customer informed of the VAT on the transaction, and businesses may receive a credit for VAT paid on input materials and services. The invoice-based method is the most widely employed method.
Employment taxes
When you have employees, you as the employer have certain employment tax responsibilities that you must pay and forms you must file.
STEPHEN ONYEKWELU
