Nigeria’s Contentious New Finance Bill Actually Comes With An Unlikely Perk For Tech Startups

In September 2019, Nigeria’s Federal Executive Council (FEC) approved an increase in Value Added Tax (VAT) rate from 5 percent to 7.2 percent.

This was one of the provisions in the newly proposed finance bill known as Finance Bill 2019 which also compels individuals to produce their Tax Identification Numbers (TIN) before they can operate new or existing bank accounts in Nigeria. The implication of this provision is that effective from 2020, every bank account in Nigeria will be taxed.

Those two provisions are possibly the most-hated items in the new finance bill and most of the conversations have been centered around them. And that’s probably why it didn’t register as much as it should have that there exist some provisions in the new bill that are actually great for the existence of early-stage startups in Nigeria.

One such provision is the item that has it that companies with an annual turnover of less than NGN 25 Mn (USD 68.5 K) do not have to pay Company Income Tax (CIT) as required by the federal government.

Before now, CIT has pretty much been standard for all companies registered and/or resident in Nigeria. 

According to tax laws, all firms registered and resident in Nigeria, after an 18-month tax-exempt period, regardless of profits, have to remit 30 percent of their worldwide profits as CIT to the federal government every year. Non-residents only have to pay tax from annual profits made in Nigeria.

But the new finance bill has it that only companies with an annual turnover of NGN 25 Mn and above fall into that tax net. And it is highly unlikely that any early-stage startup in Nigeria will be caught in that net.

It can, thus, be said that the new tax exemption policy is a huge for Nigerian early-stage startups as it affords them the latitude to initially channel all their resources to productivity and growth until such a time when they become medium-sized businesses which are mandated to pay taxes, albeit at a lower rate than larger companies.

According to the new finance bill, for medium-sized firms with an annual turnover ranging between NGN 25 Mn (USD 68.5 K) and NGN 100 Mn (USD 274 K), a lower CIT of 20 percent will be paid, while larger companies with an annual turnover exceeding NGN 100 Mn will pay the standard 30 percent CIT.

The Finance Bill has been passed by the National Assembly and will be signed into law within the course of the year once it has been assented to by President Muhammadu Buhari.

Additionally, the Nigerian government appears determined to boost investments in the ICT sector in particular — a sector that contributed more to Nigeria’s GDP in Q2 2019 than the one-time untouchable oil and gas sector. 

ICT is an area where the bulk of Nigeria’s homegrown startups have pitched their tent. And it is with the aim of propping up the ICT sector that the federal government, through the establishment of the Nigerian Investment Promotion Commission (NIPC), recently offered a number of perks to new entrants in the sector.

Some of these perks include tax holidays and a provision that guards against the remittance of withholding tax from dividends paid to company shareholders.

In a startup climate where startups seem to be perpetually dangling in a precarious position where they are just one regulation away from obliteration, all the perks mentioned above represent unlikely victories.

It’s not exactly of the same mould as what Tunisia and more recently Senegal have pulled off by enacting a Startup Act but sometimes, slim pickings are just as good as five-course meals — especially for one who’s been starved for so long.

Featured Image Courtesy: VC4A