- July 8, 2021
- Posted by: Manuels Effe
- Category: Insight
Micro Small and Medium Enterprises form the core of the 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. Although, smaller in size, they are the most important enterprises in the economy due to the fact that when all individual effects are aggregated, they surpass that of the larger companies.
In its publication of 24th March 2015, NAM News Network reports that, there exists over 17 million Micro, Small, and Medium Enterprises (MSMEs) across Nigeria which employ over 32 million people while contributing over 45 percent to the Gross Domestic Product (GDP), and that existing developmental institutions in the country including the Bank of Industry (BoI) and other commercial banks which could not satisfy the funding needs of the MSMEs, hence the establishment of the DBN (DEVELOPMENT BANK OF NIGERIA).
However, for MSMEs to attain the height they so aspire, will have to comply with some rules and regulations that guide the object clause of their various businesses. Some of these regulatory bodies are discussed below.
CORPORATE AFFAIRS COMMISSION (CAC)
This is the corporate body that has the power to register and issues a Certificate of Incorporation to any company that plans to operate as a going concern in Nigeria. The Act that established the CAC is the Company and Allied Matters Act 2004 CAP C20 LFN 2004. The Act also gives the CAC the power to regulate and supervise the formation, incorporation, registration management, and winding up of companies under or pursuant to the Act, e.g., at first penalize any registered company that defaults in paying its annual returns for a period of years before the name of such defaulting company is finally deleted from the list of the registered companies in the registry of the commission or wound up to such company under or pursuant to the provisions of the Act and render the issuance of such a company’s Certificate of Incorporation null and void.
In other to remain in business and not run into any problem whatsoever with relevant Tax Authorities an MSME must as a matter of urgency pay attention to the environment in which the business operates. Among the factors responsible for these untimely close-ups are tax related issues, ranging from non-compliance with relevant tax regulations, knowledge gap about tax matters relating to the business, non-availability of appropriate tax advices from tax professionals etc. Therefore, in other to avoid unpleasant consequences an MSME should consider the following:
- Once registered as a business entity with the Corporate Affairs Commission (CAC), Tax Consultants must be engaged to file the necessary papers with the Federal Inland Revenue Service (FIRS) nearest to its place of business with a view to obtain Tax Identification Number (TIN)
- With the TIN obtained, application can be submitted requesting for Tax Clearance Certificate on yet to commence business basis for subsequent use by the entity this is obtainable on yearly basis.
- The entity would also be registered as a Value Added Tax (VAT) agent at the FIRS office for monthly rendition of VAT and Withholding Tax (WHT) returns.
- Annual Returns at the end of each accounting year would also be filled with the FIRS together with audited Financial Statement and Tax computation STATE TAX
Personal Income Tax is paid to States’ Internal Revenue Board of each state of the federation, except employees in the Federal Capital Territory. This tax is deducted and paid on monthly basis from the emoluments of the employee of all registered establishment MSME inclusive using the appropriate progressive tax rate that is approved by the joint tax board (JTB).
This direct tax will be paid to the appropriate tax authorities of the principal place of residence of the employee and in certain cases, an MSME owner may be subjected to Direct Assessment by the relevant tax authority.
S.81(2) of PITA as amended and the Regulation 10 of the operation of PAYE provides that an employer shall render to the relevant tax authority a return on each employee showing total emoluments of each employee during the year, the tax relief, if any, and the total tax deducted from the employee. This is to be done a Form H1 or such other form as may be approved or prescribed by the relevant tax authority.
Annual PAYE returns should be filed not later than January 31 in respect of all employees of the employer in the preceding year. Penalty for late filing of annual returns of PAYE deducted (by employers) as provided by s.81 (3) of PITA stipulates a penalty of N500, 000.00 for corporate bodies and N50, 000.00 for individuals upon conviction.
As regards MSME services, withholding tax is deducted by the benefactor of the services and remit to government through State Internal Revenue as the case may be whether companywide or personal every 30 days of the month following the month of deduction.
After remittance of the amount deducted to the relevant tax authorities, a withholding tax credit note will be issued by the tax office and will be used as an offset against any future tax liabilities that arise from the income tax computation of the provider of the services. The rate is 5% for MSME or individual on the invoice value.
For employers with a minimum staff strength of 5 employees MSME inclusive, a monthly rendition of pension deduction on behalf of the employees which is 10% of Basic Salary, Transport and Housing allowances from the employer and 8% of same from the emoluments of the employee totaling 18% in all must be paid to the Retirement Savings Account (RSA) with the Pension Fund Administrator (PFA) of each employee’s choice on monthly basis.
Penalty for non-remittance attracts a fine not less than 2% of the total contribution that remains unpaid for each month or part of each month defaults continues and the amount of the penalty shall be recoverable as a debt owing to the employee’s retirement savings account as the case may be.
INDUSTRIAL TRAINING FUND
The Industrial Training Fund Act (ITFA) came into effect on 8 October 1971. The purpose of the Act was to establish a Fund –The Industrial Training Fund (ITF) -to be utilized to promote and encourage the acquisition of skills in industry or commerce in Nigeria with a view to generating a pool of indigenous trained manpower sufficient to meet the needs of the economy. Also, the Act requires employers to provide adequate training for their indigenous staff with a view to improving on the skills related to their job. Evidence of such training is to be forwarded to the ITF to obtain refunds.
The Industrial Training Fund (Amendment) Act 2011 states that minimum threshold for an employer to become liable for contribution under the Act has been reduced from 25 employees to a minimum of 5 employees or a turnover of N50 million and above per annum. The required contribution is 1% of payroll to be paid by the prescribed date defined in respect of year 2011 to mean a date not later than 3 months from the date.
These and many more regulatory compliances are what MSMEs should be wary of when starting their businesses
If the above and many not mentioned are followed, MSMEs will not fall short of any compliance related issues, they would be able to maximize their resources which in turn will guarantee steady growth and expansion, and above all ensure an effective and efficient running of the organization as the cost of non-compliance outweighs the cost of doing the right thing as and at when due.