After ratifying a new law that creates relief for small businesses through tax exemptions, the Nigerian government is considering adding tax incentives for SMEs in prioritized sectors, the trade minister said this week.
Under the new Finance Act which came into effect on February 1, small companies – with gross turnovers of not more than N25 million – are to pay zero percent in Company Income Tax, while also being exempted from making value-added tax returns on goods and services rendered.
According to Niyi Adebayo, Nigeria’s minister of industry, trade, and investment, micro, small and medium enterprises (MSMEs) in the agriculture, construction, and automotive industries will be getting tax and regulatory incentives which the ministry had started working on.
Similar to the tax exemptions under the new Finance Act, granting incentives for small businesses is part of the government’s efforts to enhance the ease of doing business and supporting the growth of MSMEs. If designed and implemented properly, tax incentives can attract investment to a country, ultimately leading to increased employment and a higher number of capital transfers.
An enabling environment for doing business is generally considered a huge factor in attracting global capital. Thus, such initiatives by the government would attract global investors when viewed against the backdrop of the country’s capacity for growth, the minister noted.
“The government… seeks a comprehensive approach in mobilizing capital, incentivizing priority sectors and expanding market access for local producers,” Adebayo said at a private equity summit in Lagos, without giving further details on the structure of the incentives.
Huge potential in construction, automotive sectors
Despite having huge potential to become a major driver of economic growth, poor performance of the construction industry means it contributes less than it could to GDP.
Fitch Solutions last year revised down its long-term construction growth outlook for Nigeria. From a previous forecast of 7.7 percent, it expects growth in the sector to average 4.8 percent annually to 2028. Industry stakeholders attribute the poor situation to several factors and call for deliberate government policies and regulations capable of repositioning the sector for economic growth.
Moreover, there is a need for accelerated and increased investment in the construction sector. Nigeria’s infrastructure stock currently accounts for about 20 to 25 percent of GDP, significantly lower than the global average of 70 percent. While it requires at least $100 billion annually for the next 30 years to meet infrastructure needs.
Attracting significant investment into the automotive sector could help harness Nigeria’s potential to become the hub of Africa’s automotive industry. The largely import-dependent automotive industry is already undergoing a notable transformation – several global auto manufacturers have set up shop in the country recently – driven by a deliberate policy initiated by the present administration to reduce importation of cars and increase the volume of locally-made cars.
With the global automotive industry looking for new growth opportunities, the continent’s largest economy, and by far the most populated, presents huge opportunities for investors in the automotive space encouraged by an enabling business environment.
In addition to tax incentives, the Nigerian minister said the government was modernizing bilateral investment agreements through the Nigerian Investment Promotion Commission and would localize at least 40 percent of its expenditure on stipulated goods and services to facilitate local markets access for Nigeria-made products.
