What do MSMEs stand to gain from paying taxes?

Paying taxes in Nigeria is one of the inevitable duties of every business owner yet an unwanted obligation, irrespective of whether the business is extremely profitable or is in losses. However, for a number of reasons, many businesses in Nigeria do not pay any taxes to government or fail to remit the right amount of taxes. This is often driven by lack of knowledge on the income that should be taxed, difficulty with making payments, poor management of tax revenue by the government, amongst others.

While MSMEs may have several self-developed justifications for not paying taxes, it is important to note that the obligation to pay taxes is a civic duty and there are many benefits to business owners such as:

• Improved infrastructure and social amenities: The provision of improved infrastructure and social amenities (i.e. hospitals, clean drinking water, electricity, road, schools…) require large capital spending which can only be provided by the government. The major source of income for the Government is tax revenues. Hence, every tax payer in Nigeria, including MSMEs, must play their part by contributing the right tax to ensure every Nigerian citizen benefits from good infrastructures and social amenities. 

• Access to finance: An MSME that remits its taxes has the opportunity to access loans and attract investors, especially institutional investors. Institutional investors such as Banks, microfinance banks, government request for tax clearance certificates (TCC) as evidence of tax compliance as part of the loan application documents. Hence, a MSME that wishes to expand its business should pay its taxes.

• Prevent additional costs: An MSME is exposed to additional tax liability arising from penalties or fines and interest in the event of non-payment of tax due. This could put further pressure on the on the finance of the MSME and obstruct growth of the business. It is therefore, important that MSMEs remit applicable taxes to the relevant tax authority as at when due to avoid paying penalties and interest which may lead to shutdown of the business.

• Avert disruption of business activities: In recent times, we have seen revenue authorities seal up business premises and seize goods of businesses without prior notice where the owners have not paid any tax or fail to pay the correct tax due. This unplanned closure disrupts business activities and may cause business owners to lose customers which may in turn lead to a shutdown of the business as its owners are unable to trade and raise the required funds to meet their outstanding tax payments. Hence, MSMEs should ensure they pay their taxes as at when due to avoid building up huge tax liabilities which may in turn threaten the going concern of the business.

• Access to engage in various transactions: The law has necessitated that several transactions can only be applied for upon presentation of a TCC as confirmation from the revenue authority that a business is paying its taxes. It is important to note that these transactions are off limit to MSMEs who fail to remit any tax or fail to remit the correct tax. these transactions include: 

  • application for award of contracts by government agencies and registered companies

  • application for government loan for industry or business

  • application for registration of a limited liability company or of a business name

  • application for import or export license

  • application for trade license

  • application for certificate of occupancy

  • application for registration as a contractor

  • registration of motor vehicle and change of ownership of vehicle by the vendor

  • application for approval of building plans

  • application for transfer of real property

  • stamping of guarantor's form for a Nigerian passport

  • application for allocation of market stalls

  • application for foreign exchange to remit funds outside Nigeria

  • appointment or election into public office; etc.

 It is important to keep in mind that paying taxes creates a win-win situation for all, as revenue generated from taxes significantly impacts government's ability to ensure availability of adequate infrastructure, provides an enabling environment for businesses to thrive and ultimately gives business owners access to greater opportunities. Despite these seeming reasons, it is an offence not to pay your taxes. The government has been magnanimous and introduced a voluntary assets and income declaration window and encourages every tax payer who has not been compliant in the past to disclose the same by 31 March 2017 and have any penalty and interests waived. Start today to pay your taxes and see your business grow.