December 11, 2023

While you earn cash from your individual small enterprise, you could pay earnings taxes, even newcomers, simply as when you labored for an additional firm. In some conditions, you might also be required to pay extra taxes associated to small enterprise operations.

On this piece, we mentioned why small enterprise homeowners should pay taxes, the quite a few types of taxes {that a} small enterprise proprietor ought to concentrate on, and get began and be prepared for taxes when the time comes.

Why Does My Enterprise Should Pay Taxes?

In line with research, about 80% of small and micro enterprises in Nigeria keep away from paying taxes, a situation that the federal government has tried to right through the years.
Whereas enterprise homeowners regularly query why they need to contribute to a authorities that seems to put common roadblocks of their path, taxation is unavoidable, with penalties that have an effect on enterprises when they’re found dodging tax.

Enterprise taxation is the tax paid to the federal government by companies as a part of their actions. Each enterprise, whether or not it’s a sole proprietorship, partnership, restricted legal responsibility firm, or company, should pay taxes. Your small business is answerable for adhering to the nation’s tax laws.

So long as what you are promoting is registered, you could pay the federal government a proportion of your income. In an effort to calculate the mandatory taxes to pay, companies, whether or not small or micro, should decide which taxes apply to the enterprise through which they’re concerned.

Every tax has a proportion related to it, so how a lot a enterprise generates in a yr may also determine how a lot to ship to the federal government. Additionally, as a result of the Finance Act exempts some micro-businesses from some taxes, you could perceive which taxes should be paid, how a lot they’re, and the penalties for late fee.

Varieties of Taxes for Small Companies in Nigeria

The very first thing a enterprise should do is create its accounts for the fiscal yr and procure an audited monetary assertion.

The automation of the tax submitting system has made it simpler for companies to file taxes over time, as they could now log onto the web sites of the federal or, in sure circumstances, state income companies to file their taxes.

Companies should provide all documentation required to file their tax returns, together with the CAC doc, administrators’ statements, and a totally accomplished Sort C kind. Following the submission of the right papers, the sum should be paid to any banks designated for tax assortment. Listed here are a number of the taxes that companies are required to file:

#1. Capital Positive factors Tax

This can be a 10% tax imposed on Capital Positive factors deriving from the sale, trade, or different disposal of chargeable property. Capital features are the income realized by an investor when she or he sells a capital asset for a worth better than the acquisition worth. Capital features taxes are solely levied when an asset is offered or realized.

#2. Training tax

This can be a tax levied on all Nigerian companies with taxable income as contributions to the Training Tax Fund. Each registered firm in Nigeria is predicted to contribute a proportion of their assessable revenue to the Training Tax Fund. The tax is charged at a price of two%.

#3. Worth-Added Tax

This can be a 7.5 per cent tax that the purchaser should pay. It’s a tax levied on the availability of products and providers. Though companies don’t pay VAT, the federal government requires them to gather it from clients and remit it to the suitable tax physique. In essence, the enterprise acts as an agent for the federal government with a purpose to acquire VAT.

#4. Private Revenue Tax

People, registered companies, and partnerships should pay this tax, except for these registered below Half A of the Firms and Allied Issues Act 1990 (integrated companies). The tax is run by the State Inland Income Service. Even in case you are a registered firm, this tax is related to what you are promoting as a result of one of many duties of companies is to gather Pay as You Earn (PAYE) from their worker’s paychecks and remit it to the state tax physique.

#5. Withholding Tax

That is an advance fee of earnings tax deducted on the time of the transaction. The earnings recipient might apply the withheld tax credit score notice or receipt in opposition to his or her final tax liabilities. For instance, when dividends are paid, withholding tax is levied on the quantity.

#6. Firms Revenue Tax

This can be a tax levied on all companies registered in Nigeria that aren’t engaged in petroleum operations. It’s a yearly tax on registered companies’ income, which should accrue in, be derived from, introduced into, or obtained in Nigeria. Firms with annual product sales of lower than N25 million, alternatively, can be absolutely exempt from paying CIT if their earnings tax filings had been filed on time.

Causes for a Low or Zero Tax Compliance

Allow us to take a look at a number of the explanation why small enterprise homeowners and newcomers fail to pay their taxes:

#1. Complexity

Taxation has allegedly turn out to be simpler through the years because of digitization and Remita, but regardless of these simplifications, a number of points proceed to hinder the taxpayer’s expertise. The potential taxpayer fills out paperwork after which brings them to the financial institution, the place there’s usually a community/internet-related subject with accessing the Remita platform.

In line with the identical survey, whatever the digital technique of remittance, the will for cheques has grown over time. That is one good motive why newcomers fail to pay their taxes as small enterprise homeowners.

#2. Price

Tax compliance is a comparatively cheap endeavour, however many companies are unaware of this and can’t relate to the expense. To file taxes, you could be charged between 20,000 and 30,000 every month; an inexpensive price, however one which some small enterprises could also be unable to afford.

This payment is for a minor tax compliance process; if a critical tax-related snafu happens, an exterior auditor can be required to mediate with the federal government. Acquiring one thing is prohibitively costly, relying on the quantity concerned. Most instances the defaulters take this as a superb motive why newcomers fail to pay their taxes as small enterprise homeowners.

All of those recurring bills will be tough to suit right into a funds for a small enterprise that generates zero to restricted income and runs lean.

#3. Ignorance

There are quite a few points that fall below this class; one of many main causes small companies in Nigeria don’t pay taxes is a lack of understanding. Ninety per cent of the startup and small enterprise homeowners polled had no concept what taxing entailed for them.

#4. Unpatriotism

Nonpayment of taxes will be attributed to a scarcity of civic duty. A startup founder acknowledged emphatically that he’s unable to submit a single penny to the Nigerian authorities since, in his view, the federal government has accomplished nothing for him or his nation. That is additionally one good motive why newcomers fail to pay their taxes as small enterprise homeowners.

This dismisses the notion that the federal government can’t do one thing for everybody; even the initiatives that can be carried out can be funded straight from the taxpayers’ pockets. Non-payment of taxes, alternatively, is in opposition to the legislation in any nation, and it’s not fascinating to start a enterprise profession on the mistaken facet of the legislation.

Penalties for Defaulting on Tax

There are various penalties for failing to pay taxes both as newcomers or not, in a small enterprise; every tax dodged carries its personal punishment. On the whole, below Part 66 of the Firms Revenue Tax Act of the Federal Inland Income Service, tax collectors have the authority to grab/public sale off the merchandise and even the premises of defaulting taxpayers with a purpose to recuperate quantities owing.

Because of this, it’s completely permissible for the authorities to grab property if taxes should not paid on time; it’s the legislation.

Part 40 of the Federal Inland Income Service Act of 2006 addresses ‘failure to deduct or remit tax’ and stipulates that;

Any one that is obliged to deduct any tax below this Act or the legal guidelines listed within the First Schedule to this Act, however fails to deduct, or having deducted fails to pay to the Service inside 30 days from the date the quantity was deducted or the time the obligation to deduct arose, commits an offence, and upon conviction be liable to pay the tax withheld or not remitted along with a penalty if 10 per cent of the tax withheld or not remitted each year on the prevailing Central Financial institution of Nigeria minimal re-discount price and imprisonment for a interval of greater than 3 years.

How Small Companies are Taxed in Nigeria?

SMEs in Nigeria should pay Private Revenue Tax, Worth Added Tax, and Withholding Tax. Beforehand, they had been liable to Firm Revenue Tax; nevertheless, this has altered because of a Finance Act 2019[5] provision that exempts small enterprises from paying tax.

Do Small Firms Pay Minimal Tax in Nigeria?

Firms that haven’t any taxable income for the yr or whose tax on income is lower than the minimal tax should pay the minimal tax. Firms of their first 4 calendar years of operation, agricultural companies, and small companies, alternatively, are free from the minimal tax.

When Ought to a Enterprise Begin Paying Tax in Nigeria?

Inside eighteen (18) months of the date of incorporation or no later than six (6) months after the conclusion of its accounting interval, whichever is earlier.

Do Small Firms Pay VAT in Nigeria?

Small companies in Nigeria are required to file and remit Worth Added Tax (VAT) collected on gross sales of products and providers if they’re correctly registered with the Company Affairs Fee. The Federal Inland Income Service (FIRS) administers and collects Worth Added Tax (VAT).

How A lot is Tax for a Enterprise Identify?

Each Enterprise Identify proprietor in Nigeria is charged the next tax price: In case your earnings is lower than N 300,000, the minimal tax price has been raised from 0.5% to 1%.

Does a Firm Proprietor Pay Tax?

Enterprise taxation is the tax paid to the federal government by companies as a part of their actions. Each enterprise, whether or not it’s a sole proprietorship, partnership, restricted legal responsibility firm, or company, should pay taxes.

Do SMEs Pay Tax in Nigeria?

Private Revenue Tax- For annually of evaluation, all small enterprise homeowners are required to pay their private earnings tax, which is ruled by the Private Revenue Tax Act (Cap P8 LFN 2004), from their supply of earnings for the yr, which additionally contains the revenue made within the small enterprise.

Who’s Eligible to Pay Tax in Nigeria?

The fee of taxes is likely one of the civic duties of each nation’s residents. As a Nigerian citizen, you might be anticipated to pay taxes. Moreover, residents, people, and organizations doing enterprise in Nigeria should pay taxes.


Do you will have any questions on taxes? Nearly all of persons are baffled by their private tax filings, not to mention the extra advanced returns required of companies. In case you are uncertain about your capability to grasp the necessities and precisely put together returns and compute funds, it’s worthwhile to interact an accountant.

The time you save coping with tax difficulties will mean you can deal with what you are promoting. The expertise of an accountant might also assist you to keep away from tax penalties, so the price of using this skilled might find yourself paying for itself.

If you happen to don’t need to be reliant on an accountant or pay their payments in perpetuity, you possibly can shift to paying your individual taxes by finishing some tax preparation courses, using a Monetary Professional/CFO, or utilizing the FIRS Tax Calculator.