PwC MSME Survey 2020

THE IMPACT OF THE FINANCE ACT 2019 ON MSMES IN NIGERIA Companies Income Tax: A Exemption for small companies, agriculture companies and lower rates The Law now sets a minimum threshold for applicability of Companies Income Tax ("CIT"). Companies that have an annual turnover of N25 million are totally exempt from companies income tax while companies that have an annual turnover of N25million- N100million have a reduced tax rate of 20%. Agricultural companies are also tax exempt subject to qualifying conditions Prior to the enactment of the Act, all companies (except agricultural, mining, export or manufacturing businesses with an annual turnover of N1m and below had a rate of 20%) doing business for profit were required to pay tax on their profit without consideration to the value of their turnover. B Tax Losses In 2007, CITA was amended to delete the previous 4 year restriction of losses. However, some wordings were not deleted which did not allow the carry forward of tax losses beyond the fourth year of commencement of business. The Federal Inland Revenue Service ("FIRS") did not enforce this provision in practice but it created some uncertainty for new investors. The Law is now clear on the restriction of carry forward of tax losses such that tax losses can be carried forward indefinitely. This is especially useful as startups who incur significant losses in the first few years of business can now carry forward tax losses against future taxable profits. Early payment incentive D TIN There is an incentive for companies that pay CIT on or before 90 days from the due date for filing. Such companies will be entitled to a bonus credit of 1% (for large companies with turnover greater than N100m) or 2% (for medium- sized companies with turnover between N25m and N100m). The higher threshold for medium sized companies acknowledges that SMEs face challenges when seeking faced by SMEs The Law mandates banks to ask for Tax Identification Number (TIN) before opening business bank accounts, while existing account holders must provide their TIN to continue operating their accounts. This is important to capture as it will capture more small businesses into the tax net. E Double taxation eliminated on commencement Before the enactment of the Finance Law, companies just commencing business were expected to prepare companies income tax for the first three years using the 'commencement rules'. Commencement rules subject the profit for a period of at least 12 months within that period to double taxation. The rules have now been modified to eliminate overlaps and gaps that created double taxation and complication during commencement. PwC MSME Survey 2020 PwC June 2020 28

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