Analysts see tax holidays boosting start-ups

The federal government must create tax holidays for start-ups operating in the Nigerian economy, if it wants this category of business to grow investments, create more jobs and diversify the economy away from oil, analysts say.

According to them, tax holidays would increase the survival rate of start-ups operating in the country as these will enable them channel more income into their working capital and, in return, help the nation achieve its goals of sustainable growth, job creation and diversification.

“Providing tax holidays for start-ups should be a critical government policy initiative, as it will promote a culture of entrepreneurship and encourage more job creators and innovators,” said Obinna Igwebuike, managing partner, Sawubona Advisory Services Limited.

“Tax holidays will help increase the survival rate of start-ups, as they will be able to channel more income generated in their early years for working capital and investments in growth initiatives into the business,” Igwebuike said.

According to him, critical sectors such as agriculture, manufacturing, solid minerals, technology and select services, which are real job generators, should be the focus of the government at least for the first few years.

Available data show that SMEs and startups represent over 80 percent of businesses in the country.  Further data show that 65 percent of these businesses fail within three years of start-up. Two key reasons for the low level of survival of this category of business are high taxes and multiplication of fees paid by start-ups.

“We have 32 million SMEs in the country with about 400 registered and only about 120 paying taxes. You can see that many refuse to pay taxes and even to register, but with 5 years tax holidays, the business would have grown and broken even. It is only then that the business can start paying taxes,” said David Omololu Aiyeola, executive secretary, Nigerian Association of Small &Medium Enterprises (NASME), Lagos Chapter, in an e-mail response to questions sent by Start-Up Digest.

Aiyeola stated that Ghana is already giving tax holidays to start-ups, saying that Nigerian investors in Ghana are already benefiting from it. “If it can happen in Ghana, then it can also happen in Nigeria. A Nigerian fashion icon was given 15 years tax holiday in Ghana and now he has a very bid fashion business in Ghana and Nigeria,” he said.

Yinka Oyinlola, CEO, Nigeria Leadership Initiative, said in the last 14 months, the number of taxes in Nigeria has increased from 39 to 57. Nine taxes are from the federal, 21 from states and 27 from local governments, he said.

According to the World Bank Ease of Doing Business indicators, 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.

In Nigeria, Africa’s biggest economy, different tiers of government collect regressive and multiple taxes and levies as well as other unofficial fees from SMEs and start-ups.

These lead to tax evasion and avoidance on the part of SMEs.

Francis Onwumere, business and product developer, Prowork- Collaborative Project Management, said government should give tax holidays to start-ups that operate as this is critical to the country’s development.

Josephine Okojie