Registration of Micro, Small and Medium Enterprises (MSMEs) for tax purposes

By Deloitte Nigeria | 3 min read
20th June 2019
Registration of Micro, Small and Medium Enterprises (MSMEs) for tax purposes

Micro, Small and Medium Enterprises (MSMEs) are the crux of economic growth of any nation. According to Ibrahim Abdulmalik, the Deputy Director, Small and Medium Enterprises Development Agency Nigeria (SMEDAN), there are presently about 37million MSMEs in Nigeria, employing 58million persons and contributing a total of N38.8trillion to the Gross Domestic Product (GDP) of the country. The activity in this sector of the economy has enormous potentials, which can be harnessed through a robust and reliable data-base.

The Bank of Industry (BOI) classifies MSMEs into the following categories as shown in the table below:

Category

No. of employees

Total asset (N'000,000)

Annual turnover

(N'000,000

Micro Enterprises

Less than 10

Less than 5

Less than 2

Small Enterprises

10-49

5- Less than 50

Less than 100

Medium Enterprises

50-199

50- Less than 500

Less than 500

Based on the above statistics, it is pertinent to note that the majority of businesses in Nigeria are within the above categorization.

Registration of MSMEs for Tax Purpose:

Every taxable person or entity in Nigeria is required by law to register with the major tax authorities in order to commence the journey to tax compliance; the Federal Inland Revenue Services (FIRS) and relevant State Internal Revenue Services (SIRS).

Understanding the basis for registration is very important to eliminating unwarranted issues around tax such as multiple registrations. Typically, MSMEs are required to be registered with one primary taxing authority. However, in some instances, MSMEs could register with more than one depending on the form of business registration and location.

How to register for Tax

A.   Federal Inland Revenue Services (FIRS)

According to the taxes and levies Act, the responsibility for collection of taxes relating to MSMEs are splitted among the various tax authorities and this is dependent on the type of business operated by the MSMEs as earlier mentioned. The type of taxes to be paid by the MSMEs will then determine how the registration for such taxes will be done.

In this case, we are focusing on registration of taxes under FIRS and the type of taxes collected by FIRS are summarized in the table at the conclusion.

Companies registered by guarantee or shares are expected to register for tax purposes with FIRS which is an automatic process once the Company completes its registration with CAC. All that is required by the Company is to regularize the registration process with the designated tax office and a Tax Identification Number (TIN) and Value Added Tax (VAT) number will then be issue to the Company.

For an existing Company who is yet to register for taxes with FIRS, the Company is required to register its CAC registration number with an FIRS office closest to the registered Company address after which the Company will then be issued with TIN for which it can commence the payment of the relevant taxes due to the Company.

With the TIN, the Company can commence the payment of the relevant taxes to the tax authority. Please note that without TIN, payment for taxes cannot be made by the Company and there is a criminal liability for tax default and evasion.

B.   State Board of Internal Revenue (SIRS)

All employers are also required to register with the relevant state authority for income tax and withholding as a Company.

Also, business name, Partnership and individual, registration for taxes is quite different from that of Companies. The following steps are required to be taken which is the same for all states;

1.    A written application to the relevant state authority to be submitted by the business name/partnership/individual with relevant documents such as;

  • Tax Payers Registration Input form
  • Certificate of Incorporation
  • Certified True Copy of Memorandum and Article of Association
  • Evidence of payment of business premises levy
  • Form CAC 2 (Statement of share capital and return on allotment)
  • Form CAC 7 (Particulars of persons who are first directors of the Company)

2.    The Business name/ Partnership/Individual can then follow-up with the relevant state tax authority, which will then issue a Tax-Payee number.

3.    Once this has been obtained, the Business name can proceed with the payment of relevant taxes to the state authority.

Statutorily, companies older than 6 months without TIN/VAT number would have violated one of the tax laws, a penalty amount of N10,000.00 (Ten Thousand Naira) applies for only this singular offence, as some other offences are likely to have been committed ignorantly.

Conclusion

Conclusively, registering your Company for tax purposes is beneficial and important in the Nigeria today, although this has not been mandated for MSMEs, a lot of benefits accrues if your company is duly registered for tax purposes in Nigeria. There are also issues and challenges faced with Companies that are registered for tax purposes, however the benefits to the Company overruns the challenges.

Below is a chart showing registration to FIRS and SIRS for ease of reference;

FIRS

SIRS

Registered as a company with CAC

Yes

Registered as a business name

Yes

Not registered at all

Yes

Resident in any state in Nigeria

Yes

Resident in FCT

Yes

Company conducting business with individuals

Yes

Business name conducting business with companies

Yes

Remitting VAT

Yes

Etc.

The table below also summarizes the major taxes collected by the various tax authorities:

FIRS

SIRS

Companies Income tax (CIT)

Personal Income Tax (PIT)

Value-Added Tax (VAT)

Market taxes and levies

Tertiary Education Tax (TET)

Development levy

Withholding Tax (WHT)

Withholding tax - WHT (partnership and Individuals only)

Capital Gains Tax (CGT)

Capital Gains Tax (Individuals only)

Petroleum Profit Tax (PPT)

 

Deloitte Nigeria
Deloitte & Touche is the Deloitte Touche Tohmatsu Limited (DTTL) member firm in Nigeria and the oldest indigenous professional services firm in Nigeria. The firm was established in 1952 by Mr. Akintola Williams, FCA, CFR, CBE, the doyen of the accountancy profession in Nigeria. Through astute management, the member firm has grown in size and scope of services to become one of the largest global professional services organisations in Nigeria, with offices in Lagos, Abuja and Port Harcourt. The firm currently provides audit, tax, consulting, accounting and financial advisory, corporate finance, and risk advisory services, to public and private clients spanning multiple industries. www.deloitte.com.ng
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