SMALL AND MEDIUM ENTERPRISES (SMEs) AND ITS TAX IMPLICATION
Small and medium-sized enterprises (SMEs) are non-subsidiary, independent firms which employ less than a given number of employees. This number varies across countries. The most frequent upper limit designating an SME in Nigeria is 5-250 employees.
Small and medium enterprises (SMEs) form the core of majority of the world’s economies. A study carried out by the Federal Office of Statistics shows that in Nigeria, small and medium enterprises make up 97% of the economy (Ariyo, 2005). Although smaller in size, they are the most important enterprises in the economy due to the fact that when all the individual effects are aggregated, they surpass that of the larger companies.
TAX AND SMEs
Like every business, SMEs are not exempted from payment of taxes. Any registered business whether SME or not are expected to remit one form of tax or another to the relevant statutory bodies upon registration as a company with the corporate Affairs Commission (CAC) and commencement of business. Undisputed fact is that FIRS is a major stakeholder in every business in Nigeria at least by the share of 32% of profit.
Though not limited to the below mentioned, the following are some forms of Taxes to be is to be paid to the relevant authority by Small Businesses:
- Company Income Tax: this is payable on the taxable profit made by the business @ 30%. The basis of assessment of a company is on preceding year basis. This means tax is charged on profits for the accounting year ending in the preceding year of assessment. The due date a company must file its returns is within six month of the company’s accounting year end for an existing company and for a new company within 18 months from the date of incorporation or 6months after its first accounting period whichever is earlier. Can this tax be settled with other instrument than cash or cash equivalent? Yes Withholding Tax (WHT) as an advance tax is meant to discharge this; where in excess it doesn't expires nor get outdated.
- Education Tax: this is payable on the assessable income of the company @ 2%
- Value Added taxes: this is payable @ 5% on all VAT-able goods and services. VAT payment is expected to be filed on the 21st day of the month following the transaction. Is VAT actually a tax on the company? No. Companies bear VAT, but simply required to remit gross or net input where applicable.
- With Holding Taxes (WHT): the rate of With Holding Taxes varies based on the services performed from as low as 5% to 15%. WHT is an advance payment on income tax deductable at source on specified transaction. In the case of WHT deducted by from companies, remittance is due to Federal Inland Revenue Service (FIRS) within 21 days after the duty to deduct arose while in the case of Individuals and unincorporated bodies entities, remittance is due to the State Internal Revenue Service (SIRS) within 30 days after the duty to deduct arose.
- Personal Income Tax: this is payable on the incomes of individuals including employees, partnerships and unincorporated trust. They are all liable to Personal Income Tax under this act.
A lot of SMEs have failed in remittance of their taxes thereby incurring tax penalties and interest in addition to taxes unpaid which can be avoided through adequate tax planning. In the next edition, we will be focusing on Tax Planning
to mitigate the sanctions by relevant tax authorities. But before then, you can get in touch with me on tax issues and many more financial advisory services we offer at J. O. AWOYEMI & CO (JOA) as a value added firm.