FG pledges to subsidise funds, reduce tax rates for SMEs

In order to create thousands of jobs for unemployed Nigerians in 2016, the Federal Government has pledged to assist small businesses operating in the country with subsidised funds and reduced tax rates.

Muhamadu Buhari, Nigerian president, made this pledge while presenting the 2016 budget at the joint session of the National Assembly last week.

“Nigeria’s job creation drive will be private sector led. We will encourage this by a reduction in tax rates for smaller businesses as well as subsidised funding for priority sectors such as agriculture and solid minerals,” Buhari said.

“We believe that this budget, while helping industry, commerce and investment to pick up, will as a matter of urgency, address the immediate problems of youth unemployment and the terrible living conditions of the extremely poor and vulnerable Nigerians,” he added.

Buhari had, in his inauguration speech, pledged to make cheap funds available for small businesses to enable them contribute more to the economy in terms of jobs, government’s revenue and gross domestic product (GDP).

 “We intend to attack the problem (of unemployment) frontally through… credits to small- and medium-size businesses to kick – start these enterprises,” the president had said.

Nigeria has 37 million micro, small and medium enterprises (MSMEs) in the country, employing 60 million people. The MSMEs currently account for 48 percent of the GDP. This contribution, according to analysts, is miserable when compared with South Africa’s, China’s and India’s, which are above 70 percent.

Nigeria’s small businesses are imperilled by lack of funds, resulting from low commitment by conventional deposit banks, which prefer to lend to the public sector than the private sector .

Apart from the Bank of Industry (BoI) which makes a number of long-term loans available to small businesses at single-digit rates, traditional banks often offer short-term loans at interest rates between 15 and 35 percent.

The Central Bank of Nigeria (CBN) had earlier fumed at this die-hard stance of banks, wondering why they refuse to fund this critical segment of the economy.

“Our strong comparative advantage in agriculture and MSMEs has not fully been fully explored, leaving these sectors too poorly developed to deliver value,” said Godwin Emefiele, CBN Governor, represented by Olaitan Mudashir Adeola, acting director of development finance, at the private sector forum ‘in Lagos.

“A meagre 3.5 percent of bank finance flows to agriculture and 0.2 percent to SMEs, and virtually nothing to exports. This is in spite of the fact that agriculture contributes about 22.9 percent to GDP; MSMEs contribute 48.47 percent and 7.27 percent of exports,” Emefiele said, in his paper entitled, ‘Accelerating  Entreprise Competitiveness and Growth in Nigeria’.

Friday Okpara, director, strategic partnership and liaison, Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), said at a forum in Lagos that most small business owners were incapable of meeting banks’ demands for collaterals.

 “Banks often talk about collaterals. But I think cash flow puts them better in assessment,” Okpara said, in an event co-hosted by  African Management Services Company (AMSCO) and the National Planning Commission of Nigeria (NPC) in Lagos.

Okpara suggested that SME owners should have better record keeping and business plans, while also ensuring they have corporate governance, if they were desirous of accessing funds.

Similarly, a report by The Economist on Nigerian SMEs says that across the full set of ‘Doing Business’ indicators measured by the World Bank, Nigeria’s performance on tax procedures is very low, citing the case of Lagos where the average company expends 956 hours per year in paying their taxes. This performance is dismal compared with the Sub-Saharan African average of 310 hours, and the Organisation for Economic Co-operation and Development (OECD) average of 175 hours. Start-Up Digest can attest that there is uncertainty in the number of taxes paid by MSMEs in Nigeria, a situation worsened by an overlapping of functions of government agencies.

The report recommends that Nigeria can emulate Rwanda, which improved its tax system through the introduction of the e-filing for corporate income tax, value added tax (VAT) and labour contributions.

One striking thing about the Nigerian tax system is that while the number of payments in Africa averages around 36.1, South Africa requires only seven payments. In

Rwanda, it is 17, while Nigeria has 47 payments, according to PricewaterhouseCoopers (PwC).

“Companies in Nigeria complain about the multiple taxation system, which is difficult to navigate and open to abuse,” says the report.