The chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Mr. Taiwo Oyedele, has revealed that the federal government will provide tax relief to 95 per cent for small businesses that form the informal sector. Considering the numerous challenges of the informal sector, the government’s gesture is timely and commendable. According to Oyedele, all businesses earning N25 million or less annually will be exempted from various taxes hindering their progress over time. Currently, many people in the informal sector can be said to be victims of multiple taxation by federal, state and local governments. But the new proposed reforms will focus on the top 5 per cent of the sector, the middle class and the elite, for taxes. The committee is reportedly drafting key legislations to effect the necessary changes in the fiscal policy and tax reform ecosystem of the country. The proposed tax relief for small businesses is sequel to a recent reintroduction of telecom tax aimed at securing $750 million loan from the World Bank.
It is also coming about 10 months after the government had suspended the 5 per cent excise duty on telecommunication and the import tax adjustment levy on specific vehicles. Last week, the Presidency announced the suspension of the 0.5 per cent cybersecurity levy on bank customers’ deposits following widespread condemnation of the unpopular tax. Undoubtedly, the informal sector deserves the tax relief. It will expectedly stimulate economic growth.
The rising cost of living and other economic challenges have increased production costs and poverty level. In spite of this, the informal sector remains the backbone of the economy, providing livelihoods to an estimated 65 per cent of the Nigerian labour force. A recent World Bank report put the employment contribution of the sector at 80.4 per cent, while the formal sector contributes just 10 per cent, and 9.6 per cent in households. The report said the predominance of the informal sector accounts for two-thirds of Nigeria’s gross domestic product (GDP). While 78.8 per cent of men are in the informal sector, 12.9 per cent of men are in the formal sector, 82.1 per cent of women are in the informal sector and only 6.9 per cent of the women are in the formal sector.
In the face of economic uncertainty, the sector has demonstrated remarkable resilience and adaptability, with the small-scale, unregistered enterprises surviving despite unsavoury economic policies. Unfortunately, some of the government’s policies do not support the growth of small and medium businesses. For example, the recent hike in electricity tariff for some consumers by the Nigerian Electricity Regulatory Commission is just one of them. The matter is still unresolved as the Nigeria Labour Congress, last week, picketed the offices of some distribution companies and called for immediate cancellation of the hike in electricity tariff.
It appears that the government is using taxes as the main tool of raising revenue, regardless of the consequences on the key drivers of the economy. The Accountant General of the Federation (AGF), Oluwatoyin Madein, underscored this much during the 26th annual tax conference of the Chartered Institute of Taxation of Nigeria, in Abuja. According to her, tax has now become the “highest revenue source” of the federal government. Taxation is good for development. However, multiple taxes will stifle businesses and the economy.
Therefore, the tax relief for small businesses is a welcome development. We advise that the gesture should be extended to some businesses in the formal sector, especially the manufacturing sector. Recently, the Manufacturers’ Association of Nigeria (MAN) lamented that its members were subjected to pay over 30 different types of taxes by the federal, state and local governments. The association also said that the burden of production costs on its members led to the closure of over 700 industries at the end of the 2023 financial year. Due to rising energy cost, members of MAN reportedly spent N290 billion on self-generated energy in the first quarter (Q1) of 2024. Of this amount, N221 billion was spent on diesel.
The worst hit is the food, beverage and tobacco sector. Production volume has dipped as a result of production costs that have affected backward integration and profitability. It bears reiterating that no nation grows more prosperous by taxing its citizens beyond their capacity to pay. Therefore, government’s policies should not be allowed to frustrate any sector of the economy. Let the government promote the ease of doing business for both small and large businesses.