Making the Small Business Great (2)

The gathering in Lagos last week of micro, small and medium enterprises (MSMEs) in Nigeria for the Ninth Enterprise Development Centre (EDC) Annual SME Conference, shed considerable light on some positive developments in that sector. It also revealed some of the reasons why small businesses have remained just that, small. The EDC, which is part of the Pan Atlantic University, has continued to champion efforts to build capacity among Nigerian entrepreneurs. This annual conference of its alumni and their partners is part of the effort not only to create and empower SMEs but also to keep an eye on their development. I was privileged to be in attendance and to chair one of the sessions.

Despite the well-known challenges SMEs face, especially in Nigeria, a large number of these organizations turned out to participate in the conference and exhibition. The enthusiasm exhibited by the participants at the conference spoke very eloquently of their desire to contribute to the development of their country. From the items on display and services promoted at the exhibition, one could easily see the desire of many budding entrepreneurs to contribute to a Nigeria that not only consumes imported items but is willing to produce and export. A lot of creative ideas were actually on display.

However, carefully concealed beneath the gay faces and the high-pitched voices of ushers, showing visitors round the exhibition stands, lay the impact of years of hard labour, which running a business in Nigeria has become. I had the privilege of moderating one the sessions of the conference’s discussion groups and what came out was that the development of MSMEs in Nigeria has been hampered by the absence of a clearly discernible economic direction. Public policy has not only been suboptimal in resource allocation, it has also been very inconsistent and discontinuous.

The landscape is replete with tales of woe by small business owners who do their best each day to support national productivity efforts only to find out that the environment holds them down. It became very clear that a major missing link in Nigeria’s SME development is public policy support. Many small business owners at the conference spoke up clearly against the tax system and other forms fiscal misfortune they continue to confront in Nigeria. Top on the list of their complaints was the issue of transparency in the tax system.

The tax authorities have continued to impose all kinds of taxes on small businesses and the basis of such taxes remains unclear. For instance, they wanted to know why small businesses, most of which are at their early stages of life, would be levied taxes even when they reported losses. That is the experience of many entrepreneurs in Nigeria. We all know that corporate taxes are imposed on profits not losses. On what basis then, do tax officials, especially at the state and local governments, continue to harass even loss-making small businesses for payment of income tax?

While there still remains no controversy over the duty of every individual, corporate or otherwise, to meet their tax obligation, the point was made that the Nigerian tax system was anti-small business. Going by the stories from many participants across the country, the problem of multiple taxation seems to get worse as the years go by. This problem has moved from one in which the issue was the absence of harmony among federal, state and local government taxes levied on small businesses, to one of disharmony and duplication in the taxes levied by each tier of government.

It is now evident that the duplication of taxes, which local governments have been doing for a long time without providing any iota of service, is getting worse. In some local governments, a company could be required to obtain permits for virtually everything except the air it breathes. Such permits include radio, television, parking space in front of the office, and so on. Others include several car stickers without which they are not allowed to use vehicles that had been properly licensed, sometimes by the same local governments. And when they move from one local government to the other the matter is worsened. Each one of the local governments has its own set of stickers for practically the same items. So, a small business vehicle going between two local governments is arrested by thugs deployed by one local government authority for these car stickers, which must be paid instantly. And if they are lucky to make the payment in this particular local government area, it is not a licence to drive through another. So even after they show evidence of such payments to one local government, they are arrested by another for the same permits. Indeed there seems to be a competition going on among various tiers of government to see which oppresses small businesses the most. That is the situation across the country.

There was no controversy at the conference on the obvious fact that the payment of taxes is a civic duty of all citizens that must be performed. That being the case, SMEs are willing and have been honouring this national duty. However, their grouse is that company income taxes, which should be paid on profit and not on losses, are now being levied on them even when they reported losses.

Tax authorities now question why companies report losses and sometimes insist the companies made profit but reported losses. In one instance and in order to collect more income tax from a CEO tax officials insisted that the CEO’s salary should be increased because they think she underpaid herself. How ridiculous! So, one finds that tax liabilities are manufactured and allocated to companies without any basis, and the payment forcefully enforced. This complaint was made by many participants from different states and those who spoke about what they consider injustice in the tax system. Somebody has to do something quickly. 

There is no doubt that Nigerian businesses pay a huge price to remain afloat. What is in doubt is how much longer they will continue to do so. This is because the current economic atmosphere of near lack of foreign currency to execute their businesses has added a new and very serious dimension to their already bad operating environment. It is now evident that those who are brave enough to continue the pursuit of entrepreneurship in Nigeria would have to deal with these challenges for a longer time. Their travails are yet to abate.

The need for coordination and the ability to muster a common front to deal with some of their many challenges was extensively canvassed. Speakers at the conference were unanimous on one key issue – the absence of a strong voice for the mostly budding entrepreneurs in Nigeria. There is no need to dwell on the importance of a common front for members of any business group. Such a common front is even more important in developing markets like ours, where every imaginable facility for business growth is either in short supply or down-right unavailable.

The role which some umbrella organizations such as SMEDAN have played in promoting small businesses in Nigeria was duly acknowledged. However, a lot needs to be done. The Director General of the agency, Bature Umar Masari, was on hand to assure Nigerian entrepreneurs of his agency’s support to resolve some of the identified problems. While that is on-going, what may be the low hanging fruit is the development of a common voice or the strengthening of any such voice of Nigeria’s MSMEs to help midwife a better operating environment.

Emeka Osuji