Stamp duty is a tax charged on written and electronic instruments, otherwise referred to as documents. It was first introduced to Nigeria via Ordinance 41 of 1939, but currently codified as the Stamp Duties Act, Cap S8, LFN 2004 (“SDA” or “the Act”). Besides the Act as the main legislation, there are also subsidiary legislations to the Act – the Stamp Duties (Mortgage and Marketable Security Duties) Regulations of 1963 and the Stamp Duties (Approval for One Unit Die of One Million Naira) Notice of 2003.
The Act has seen little to no amendment since its enactment in 1939, until the passing of the Finance Act 2019, through which the SDA was amended to include electronic instruments within the purview of stamp duties in Nigeria. Effective from February 2020, electronic documents are now considered dutiable instruments.
Prior to 2020, the only active areas of compliance with the Act were upon incorporation of companies and filing of notice of increase in share capital at the Corporate Affairs Commission (CAC). With the introduction of the Finance Act 2019 and the inauguration of the Inter-Ministerial Committee on the Audit and Recovery of Stamp Duties in 2020 by the President to recover unremitted stamp duties, more focus is now drawn to stamp duty by the government and taxpayers alike.
Stamping of dutiable instruments is imposed by the relevant provisions of the Act, and as such not a voluntary obligation of taxpayers. That is, even where there is no likelihood of a litigation, as erroneously believed in the past, the responsibility to pay stamp duty subsists and remains as such until discharged.
In today’s rapidly changing business world, one of the major ways to guarantee a competitive advantage is through business model review and reinvention. Existing scholarly investigations show that the focus of reinvention is not only to outperform competitors but to especially spring a business into new areas of competitive advantage. Business model innovation is expected to become even more important for success than product or service innovation in the future due to its focus on improving the value that is to be provided to consumers and how that value would be inherently delivered to drive profitability.
A well-crafted business model serves as a valuable tool for attracting and retaining employees
Any business, whether startup or existing, needs a clear and concise business model; a plan that serves as a roadmap, laying out the strategies for the continual growth of the business. It should be regularly updated as the business grows and evolves because it describes the way a business will develop and present its product / service to the market, and drive sales. A business model determines what products / services are best for a company to sell, how it wants to promote its products / services, what type of customers it should try to cater to, as well as its fair share of the market and associated revenue streams to expect.
To reinvent is to modify the business model of an organisation, transforming it for the better by making real-time and mutually supportive changes both to its value proposition to customers and to its operating model. At the value proposition level, these changes address factors such as the choice of the target market segment, product, service offering, and revenue model; and at the operating model level, the focus is on variables such as how to drive profitability, competitive advantage, utilisation of resources, and value creation.
For example, in 2003, Apple introduced its iPod with the iTunes store, revolutionising portable entertainment, creating a new market, and transforming the company. In just three years, the iPod/iTunes combination became a nearly US$10 billion product market, accounting for almost 50% of Apple’s revenue. The company’s market capitalisation catapulted from around US$1 billion in early 2003 to over US$150 billion by late 2007.
This accomplishment is well known; what is less well known is that Apple was not the first business to bring digital music players to the market. A company called Diamond Multimedia announced the Rio in 1998. Another firm, Best Data, introduced the Cabo 64 in 2000. Both products worked well and were portable and stylish. So why did the iPod, rather than the Rio or Cabo, succeed tremendously?
Apple did something far greater and smarter than take good technology and wrap it in ostentatious design. It took good technology and wrapped it in a great business model; its true innovation was to make downloading digital music easy and convenient and to that, the company built a ground-breaking business model that combined hardware, software, and top-notch service. This approach worked like Gillette’s famous blades-and-razor model in reverse: Apple essentially gave away the “blades” (low-margin iTunes music) to lock in the purchase of the “razor” (the high-margin iPod). That model defined value in a new way and provided game-changing convenience to consumers.
Understanding the need for business model reinvention will help any business owner make the best choices in designing the path to growth
“Great opportunities await businesses that can find an undeserved market, discover the needs of that market…”
Below are some key business reinvention strategies that enhance the competitive edge of a start-up or existing business:
Implement Operational Changes Change is not only inevitable but can also be very beneficial, the pandemic year saw many businesses undergo a total turn-around in their operational arm and whilst some businesses had to make moderate changes, other businesses were forced to transform nearly all facets of their operations. Many were unable to evolve into the required changes and were forced out of business. Fortunately, for those able to adapt, many of the changes and transformations embarked on made and will continue to make these businesses more profitable and stronger in the future.
Be Creative with Pricing Many businesses get in a rut, always charging the same price for their products or services. Pricing, however, does not have to be static. There can be discount pricing for sales, quantity purchases, second item purchases, and special day or hour pricing. On the flip side, there can be premium pricing for extended warranties and services, add-on products and services, as well as personalised services.
Locate Underserved Markets and Target them Great opportunities await businesses that can find an underserved market, discover the needs of that market, and then determine how to best satisfy those needs. An organisation can maintain its core target market while expanding into new markets, creating a unique market niche.
Have a Greater Internet Presence Traditional, established businesses can certainly get caught in the past while their competitors gain traction in the future with a pervasive online presence and an e-commerce site. The global pandemic has caused most individuals and employees to isolate to a certain degree and also forced businesses – whether B2C or B2B – to operate differently than in the past. To operate in the new normal, a company needs to seek expanded opportunities provided by the internet and by extension, the Metaverse.
Conclusion
Disruptive shifts in the corporate landscape have resulted in the birth of new industries and business models, and knowledge, innovation, and self-renewed change have become sources of long-term competitive advantage. Despite these truths, many businesses struggle to overcome organisational stagnation created by existing industry conventions and ‘traditional’ views.
The contradictory situation of developing new business models while simultaneously benefiting from current models may appear to be distracting to most organisations. However, systemic strategic management does not imply the complete and/or immediate abandonment of the current organisational business model. Rather, it refers to the process of initiating, experimenting with, and developing new business models alongside the management of an existing business model through the use of appropriate strategic frameworks and tools.
In today’s business-scape, the era of organisational ‘comfort zone’ is most certainly over. This means that the pursuit of business model reinvention has become a critical ongoing process.
For assistance in the review and or design of your strategic roadmap, send an inquiry to mc@pedabo.com
News
Ardova v. FIRS: TAT Rules that Taxpayers Need Not Claim Maximum Capital Allowance in any Assessment Year
April 5, 2023
The Tax Appeal Tribunal (“TAT” or “Tribunal”) in Lagos, has held in the case between Ardova PLC (“the Company” or “Ardova”) and Federal Inland Revenue Service (“FIRS”) that the claim of capital allowance below the threshold of 662/3 per cent of assessable profit does not offend the Companies Income Tax Act (CITA).
Highlights of the Case Ardova PLC is a leading indigenous and integrated energy Company in Nigeria. The Company is engaged in the marketing and distribution of petroleum products like fuels, production chemicals, lubricants, greases, etc. The Company filed its income tax returns for 2015 and 2016 assessment years as and when due. However, in November 2016, the Company filed amended tax returns in line with the provisions of Section 90 of CITA. The amended returns were aimed at correcting a mistake made in respect of capital allowance claimed by the Company in the annual tax returns for both years.
Sometime in 2019, the FIRS carried out a tax audit of the Company for 2017 and 2018 assessment years and raised additional assessments on the Company. The additional tax liability was based on its treatment of unrecouped capital allowance carried forward from 2016 assessment year amongst other issues. The Company filed an objection to the additional tax liability on the basis that it has correctly applied the provisions of paragraph 24(7) of CITA and filed an amended tax returns in line with the provisions of section 90 of CITA. The FIRS, on the other hand, disagreed with the objection that was filed by the Company against the additional assessment. Consequently, the Company proceeded to the TAT to file an appeal against the tax assessment.At the tribunal, the Company requested to know amongst other prayers, whether:
the Second Schedule to CITA provides a general minimum deduction that must be claimed by a Company from its available capital allowance; and
the FIRS was right in law to disallow the capital allowances claimed by the Company in its restated tax returns.
In arguing its case, the FIRS stated that the decision of the Company to claim capital allowance below the unified percentage when it had sufficient assessable profit, is unreasonable, unjust, and a breach of paragraph 24(7) of the Second Schedule to the CITA. Therefore, the capital allowance carried forward to 2017 assessment year was disallowed.
The Decision of the Tribunal In delivering its judgement, the TAT clarified that claiming capital allowances below the threshold of 662/3% does not offend the CITA, as the Act did not make provision for a minimum percentage of capital allowance to be claimed by a taxpayer. However, in taking a final position, the TAT held that the Company having claimed the maximum allowable capital allowances, self-assessed itself to Excess Dividend Tax, and paid the tax for the year in issue, could not file an amended tax return to reduce capital allowances, which had earlier been absorbed in previous tax returns. As a result, the TAT maintained that the Company cannot enjoy the relief contemplated by Section 90(1) of the CITA. The claim by the Company that the amended returns were filed to correct a mistake was not accepted by the TAT.
The Tribunal attempted to establish the essence of the provisions of Section 90(1) of the CITA by relying on the definition of “mistake” in the Black’s Law Dictionary as “some unintentional act, omission or error arising from ignorance, surprise, imposition or misplaced confidence”. The TAT held that even though the right of the Company to file amended tax returns as enshrined under Section 90(1) of the CITA was not in dispute, the intention behind the act could not be deemed to be a “mistake” as envisaged by the law. The TAT believed that the Company could only take the benefit provided in the aforementioned Section if the mistake had resulted in the Company being assessed to excessive tax. Therefore, since the issue of excessive tax does not arise, the Company cannot seek the relief envisaged under Section 90(1) of the CITA.
Our Comments Over the years, the issue of minimum threshold for the claim of capital allowance has continued to generate a lot of controversy between the FIRS and taxpayers. It is, therefore, laudable that the TAT has finally put the matter to rest by confirming that the CITA, indeed, did not specify the minimum percentage of capital allowance that is claimable by a taxpayer. However, the Company’s appeal failed in part because the TAT held that the Company did not pay excessive tax as a result of the relief sought under Section 90(1) of the CITA.Therefore, it appears from this decision of the TAT that taxpayers cannot just rely on complying with the process or procedure of filing amended tax returns, where they are of the opinion that an error has been made in their tax returns. They must also ensure that they satisfy conditions which have been established by the TAT in this case, that is, they must:
have paid tax in the year of assessment;
be able to prove that a mistake or error has indeed occurred in its returns, statement, or account for the period;
have paid excessive tax as a result of the error or mistake in its returns or statement; and
apply for relief in writing within six years after the end of the year of assessment that the mistake occurred.
In the instant case, however, the amended tax returns of the Company did not relate to relief for overpayment of tax because a self-assessment was done, and the tax thereon was duly paid. Rather, the changes introduced by the amended tax returns of the Company was to effect 50% and 40% thresholds for the capital allowance absorbed for 2015 and 2016 assessment years. Consequently, the TAT held that the FIRS acted appropriately in disallowing the unrecouped capital allowance of the Company for those assessment years.
Notwithstanding the position of the TAT that the claim of capital allowance below the maximum threshold does not offend the CITA, it is important to note that Companies that are liable to pay minimum tax in any assessment year should take precaution in claiming capital allowance below the threshold provided under paragraph 24(7) of the Second Schedule of CITA. This is because Companies paying the minimum tax under Section 33 of the CITA are expected to claim their capital allowance as far as it can be absorbed by the assessable profit of the period.
It is yet to be determined whether the Company will file an appeal against the Tribunal’s interpretation of Section 90(1) of the CITA. Notwithstanding, we advise taxpayers to seek professional advice, where there is uncertainty with regards to their applications and interpretations of the tax laws, to avoid incurring additional tax liabilities due to misinterpretation of the tax laws.
Backtrack 10 to 15 years, many businesses and government agencies would be operating in a reasonably fixed-no-room-for-variableness manner. They would occasionally migrate to a new method of functioning through a formal, prolonged change program, and this change was often the exception, necessitating the need for a strategic plan and roadmap to avoid disruptions and continue to manage the business effectively.
According to a Gartner’s benchmark analysis from 2018, 73% of business leaders surveyed agreed that changes are happening faster, pushing organisations to go through restructuring, culture changes, and mergers or acquisitions, independently or all at once. Unfortunately, only a few organisations have been able to adapt to this new reality as 80 to 85% of the world’s companies still operate without a strategy, according to Michael Porter and Roger Martin.
A strategic roadmap is a conceptualised image of a company or a business’s tactical plan, it contains mapped out processes with goals and objectives, timelines, tasks, resources required, etc. It bridges the gaps for your employees by illustrating how their daily pursuits position with the company’s mission.
An excellent strategic road map is like a GPS (Global Positioning System) for your business; It not only tells you your position and shows you the direction to your finish point, but it can also make apparent the fastest route as less time is delegated to figuring things out, and routes to avoid or mitigate potential risks are often clearer. It is one of the best tools to lift the haze and make your vision clear for everyone on the team.
Business as Usual – BAU as we like to say is really a ‘settled system’ of carrying out repetitive work, it can be described as a non-structured but generally accepted way of running a business. It is usually not strategic – though it perhaps evolved from some semblance of a strategic plan whether documented or not – and seldom makes use of a structured but variable plan of activities. An activity that potentially causes a deviation from BAU will typically encounter resistance among teams, for many reasons. People may not be able to comprehend the changes, and might oppose them, or they may simply need time to adjust or get used to the changes being introduced.
Business as usual covers a broad category of day-to-day business operations, which includes: Team members carrying out their daily tasks, as defined by their job description. Outcomes or deliverables resulting from projects that are integrated into the business’s daily operations. Tasks deemed crucial to running the daily operations of the business. Attending to critically rated tasks that contribute to the purpose of the business to be achieved. Tasks carried out to achieve terms of contracts or agreements.
What they all have in common is their consistency after some time, such that they become the ‘only’ way to do things, such that anything else becomes a distraction to be resisted.
In the context of this review, BAU is an undocumented, haphazard pattern that has become the norm across different teams, and is seen as the only way to approach any challenge that presents itself. We attempt to analyse the difference between following through on a strategic roadmap and BAU activities, and establish a pointer to which is preferable in the world of business today. A Strategic Roadmap incorporates optional outcomes into its planning, as such, they can be hugely flexible. Thus, no matter what internal or external changes emerge, if your plan has been mapped effectively, businesses will be able to adjust to these changes in a structured manner and avoid making costly mistakes. Also, they allow the design and appropriation of change by defining measures that can be used to monitor results. On the other hand, BAU (if approached without intuition and context) can be rigid, usually indicating a more fixed manner of operations without consideration to context per time.
Case: Imagine a simple case; a lady who changes her name (due to marriage or whatever reason), has executed a change of name procedure in the courts and has the necessary affidavits certifying the validity of current pertinent documentation – e.g., passport on hand. She goes to her bank and applies for a change of name on her account, and the Officer says she must produce an ID card in the new name or must maintain the old name.
Why? Because BAU procedures say an ID with a new name must be provided to change a name on the customer database, so regardless of the fact that the passport is still valid for another 5 years and must expire before a renewal, as well as there being supporting documents to attest to the change of name, the Officer declines to deal with the request, unless a manager intervenes. Unfortunately, even a manager may be stuck in his/her BAU ways to think through the context and rather defer to ‘procedure’.
Solution: A strategic roadmap on the other hand would have looked at the possible reasons a person would have required a name change and considered all possible outcomes and associated existing documentation in line with the strategic intent, such that there would be optional courses of action to deal with the situation, without really needing to defer to someone’s sole discretion. What options exist? What would be needed to execute those alternatives? What is the likely outcome of those alternatives? All these are given attention through the strategic planning process and each have a node within a strategic roadmap.
How strategic roadmaps can benefit businesses? There are ways in which BAU can incorporate an excellent strategic roadmap for increased productivity and success. Firstly, by acknowledging and recognising the relevance of having a strategic roadmap for your business; there has to be an acknowledgment from the business owner that the foundation of the business depends solely on the buildup of strategy for an effective structure. Eventually, the main purpose of having a strategic roadmap is to be able to evolve and refine virtually every aspect of one’s effectiveness – from employee engagement to proposition execution, to leadership. Here are some benefits of a strategic roadmap:
A shared perception of responsibility is infused: Collaboration and collective responsibility are in demand when a strategic roadmap is operationalised. The key to having a beneficial and successful business using a strategic roadmap is to engage everyone with the plan, in the early, mid, and end stages of execution thereby leading to the monitoring of results at regular intervals.
Operational efficiency among leadership skyrockets: It provides leadership with the knowledge to align with the organisation’s functional activities to achieve set goals. Operational efficiency is also increased amongst leadership when it fosters relevant, objective, and company-wide leadership considerations, such as budget demand to achieve a set of accomplishments.
Employee satisfaction and continuity expand: Employees tend to become responsible and they have a sense of responsibility for the work, rather than just being handed or told a set of expected processes per activity. Also, it can be used to plan dynamism like better career growth, bonus or benefits, and upgrading workplace culture because the skills gaps and required succession become immediately apparent.
It supervises expectations and supports reliance: Transparency is assured during this process, as trust is built and ambiguity is crumbled. A strategic roadmap executed well or in the continuous process of execution is beneficial because it creates more opportunities for collaboration.
How businesses today can incorporate excellent strategic planning into their operations. First, it is key to design, review, redesign and or understand the established corporate philosophy and how it envisions your business. These simple statements that culminate in your vision, mission, values and culture, set the tone of what becomes the strategy your business will be built upon over the next decade or century!
Your Vision: An important guiding post that every business should repeatedly be reminded of is a clear vision statement. A company’s vision statement serves as a strategic goal, and it can also act as a blueprint or guide for employees when difficulties are experienced helping to prompt employees and drivers towards shared goals.
Your Values: Your company’s values should align with the culture that the organisation lives by towards achieving that vision, if they are not aligned, changes should be made so everyone can be guided by the same principles. Value helps employees understand what the business stands for. Guidance for work and a sense of security are developed when value is broadly integrated in a business.
The Critical Goals: Outline the critical goals to help make the vision a reality. The goals can be for the company as a whole or oversee a different primary area such as brand development, customer service improvement, and social media marketing, or can be developed along business units, again as further integration and ownership of the contribution towards the business’s overall vision.
Unit Strategies: Outline the various tactics for achieving the critical goals. Strategies ensure every part of the business is planned. This means efficiency and effectiveness are active outcomes that drive BAUs. Everyone is aware of what they need to be doing and responsibilities are apportioned appropriately. It can help a business gain a competitive advantage over others. Your company’s tactics a delicate and important part of the roadmap, as they bring each part of the map to life. So, spend some time here to carefully list all the actions that are required, implementable, and trackable. Who is going to do what and when? What resources would they require? These answers move your strategic imperatives to operations. Strategies often fail because not enough attention is paid to operationalising the plans.
Potential Roadblocks: Layout probable risks to each plan and think through the responses to each of those risks and outline their delivery and potential outcomes.
The Milestones: Plant small flags on your roadmap to indicate the spots where important milestones for the achievement of the goals will happen. It is important to celebrate all wins no matter how small, they keep the fire burning.
Conclusion Change is now a normal part of day-to-day business and the rapid pace is too complex for the traditional Business As Usual way of conducting operations. Unless organisations, and the way they manage change evolve, they will be overtaken by their competition or drowned by external events. Herein lies the necessity of a Strategic Roadmap for a successful business. In the absence of a plan, a company is more likely to operate aimlessly leaving employees unsure of the value of their input and the essence of the business today! Thus, it is important that as business drivers, you apportion time to develop an effective strategic plan; yes, the planning, execution and monitoring process could be daunting and does take up time and resources, however, its rewards far outweigh any pitfalls and sets the pace for the eventual success of any venture.
For assistance in the review and or design of your strategic roadmap, send an inquiry to mc@krestonpedabo.com
News
Business Facilitation Act 2023: A Tool to Enhancing the Ease of Doing Business in Nigeria
Introduction The President, in February 2023, signed the Business Facilitation Bill into law, thus birthing the Business Facilitation Act of 2023 (“the Act” or “BFA”), the first of its kind, which became effective from 8 February 2023. The objective of the Act is to eliminate impediments to the ease of doing business, entrench transparency, efficiency and productivity in the country, via the amendment of certain provisions of relevant extant laws.
The following legislations have been amended via the Act: • Companies and Allied Matters Act 2020 • Export Promotion Act • Financial Reporting Council Act • Foreign Exchange (Monitoring and Miscellaneous Provisions) Act • Immigration Act • Industrial Inspectorate Act • Industrial Training Fund Act • Investment and Securities Act • National Housing Fund Act • National Office for Technology Acquisition and Promotion Act • National Planning Commission Act • Nigerian Custom Service Board Act • Nigerian Export Promotion Act • Nigerian Investment Promotion Commission Act • Nigerian Oil and Gas Industry Content Development Act • Nigerian Port Authority Act • Patents and Designs Act • Pension Reform Act • Standard Organization of Nigeria Act • Trade Marks Act
We have examined the major changes brought about by the BFA as they relate to the above mentioned statutes in the following paragraphs. A. Companies and Allied Matters Act (CAMA) 2020
i. Section 127 – A company may now increase its share capital via resolution of the board of directors, subject to the direction laid down in the company’s Articles of Association. Prior to now, this could only be carried out at a company’s general meeting.
ii. Section 142 – The BFA clarifies that pre-emptive rights of shareholders, where newly issued shares must first be offered to all existing shareholders before their allotment to third parties, relates only to private companies. Furthermore, the offer must now either be accepted or declined within 21 days of receipt of such offer, compared to the erstwhile ‘reasonable period’ contained in the section prior to the amendment.
iii. Section 149 – This section has been amended to emphasize that the powers to allot shares are vested in the company and may only devolve to the directors where the board has express authority to do so either via the Articles or in a general meeting.
iv. Section 154 – A shorter timeline of 15 days (previously 1 month) has been introduced for filing notice of allotment of shares at the Corporate Affairs Commission (CAC).
v. Section 171 – Share certificates issued to allotees of shares may now be represented in electronic forms.
vi. Section 240 – The option to hold virtual general meetings has now been extended to public companies, provided that such meetings are conducted in line with the company’s Articles.
vii. Section 275 – Public companies now expected to have at least one-third of the total number of directors sitting on the board as independent directors. Before now, the minimum number required was fixed at 3 independent directors.
viii. Section 572 – The monetary threshold for determining a company’s inability to pay its debts which was previously stipulated as ₦200,000 has been deleted and replaced with ‘a sum to be determined’ by the CAC.
ix. Section 868 – The definition of ‘Insolvency Practitioner’ has been deleted as the previous provision was inconsistent with Section 705 of CAMA which outlines the qualifications expected of an insolvency practitioner. The latter provision now subsists and remains in force with no contradictions in the law.
B. Industrial Training Fund (ITF) Act
i. Section 6 of the ITF Act has been amended to the effect that only employers with at least 25 employees in their establishment are required to contribute 1% of their annual payroll as ITF Levy.
ii. The previous threshold of a minimum of five (5) employees and the turnover marker of ₦50m have been deleted effective from the commencement of the BFA.
iii. Employers operating within a free trade zone are also not required to pay the ITF Levy.
C. National Housing Fund (NHF) Act
i. The minimum threshold for eligibility to contribute to the NHF is pegged at minimum wage, currently ₦30,000.
ii. The previous base of charging NHF Levy being the basic salary has been deleted and replaced with monthly income.
iii. Employees in the public sector are now mandated to contribute 2.5% of their monthly income.
iv. Contribution into NHF by employees in the private sector is now deemed optional, the amended Section 4 of the NHF Act uses the word ‘may’ compared to ‘shall’ used in respect of the contribution by employees in the public sector.
v. Self-employed persons are mandated to contribute 2.5% of their earnings into the Fund.
Other Notable Changes i. An amendment to the Pension Reforms Act; now qualifying pension assets as eligible securities for lending as approved by the regulator. ii. A Nigerian entity which acquires foreign participation post-commencement of business is required to register with the Nigerian Investment Promotion Commission within three months of such acquisition. iii. The definition of ‘goods’ is now extended to include services under the Trademarks Act. iv. Companies in their first 2 years of business operations are exempted from incurring late registration penalties where eligible contracts are registered with the National Office for Technology Acquisition and Promotion (NOTAP) Act before the end of the second year of business operations. v. The Investment and Securities Act (ISA) has been amended to the effect that private companies can only allot their shares offered to the public through means prescribed by the Securities & Exchange Commission. vi. The Central Bank may revoke the licence of any authorized dealer, i.e. a bank, or any authorized buyer, such as bureau de change, hotels, etc., where such dealer or buyer fails to utilize the licence within 30 days of obtaining same, ceases to qualify for the licence, applies for its liquidation, provides false material information, amongst other contraventions. vii. The Registrar-General of CAC is now charged to ensure that all application processes at the CAC are fully automated from start to completion.
Requirements for Ministries, Departments & Agencies (MDAs) The BFA also provided for new administrative regulations for MDAs which provide products or services to the public. The following are now required of such MDAs: i. All MDAs are now mandated to publish on their websites, a comprehensive list of requirements to obtain the products and/or services they provide, as well as a service level agreement which shall include the following:
a list of products and services rendered.
documentation requirements
applicable fees
timelines for processing applications
summary of the procedure for application
redress mechanisms, etc.
ii. The hard copy version of the list is also required to be kept updated all at times and made available at the offices of the MDAs. iii. Where there is a conflict between a published list of requirements and an unpublished one, the provisions of the published list will prevail. iv. The timeframe for every application as well as at least two modes of communicating official decisions to applicants, are to be included in the publication. v. Where any MDA fails to communicate an approval or rejection of any application within the specified timeline, such application will be deemed approved and granted. vi. All notices of rejection must be communicated with grounds of rejection to the applicant within the stipulated timeline. vii. All MDAs are required to work collaboratively under a ‘one government’ directive, to ensure the seamless delivery of products and services to the public.
Our Comments The enactment of the BFA is a welcome development for all companies doing business in Nigeria. It is not surprising that the majority of the changes are contained in CAMA, being the primary legislation that deals with the administration of companies in Nigeria. Therefore, it is only logical that the changes necessary to bring about efficiency in the regulatory environment of companies to ensure ease of doing business start from the amendment of the core statute.
Embracing technology by giving a nod to electronic share certificates, meetings, delivery of notices, voting and an end-to-end automation of processes at the CAC, is a laudable step in the right direction to ensuring that the administration of companies is seamless and in tune with global best practice.
Many companies will be gratified with the amendment of the ITF Act by the BFA. In effect, the ITF Act has been stripped of provisions that were introduced in 2011 which sought to make virtually every company a contributor to the Fund to the chagrin of many. However, it is important to note that this amendment of the ITF Act may not affect contributions already due as at February 2023 when the BFA was signed, irrespective of the fact that the payment deadline is March 31 of every year.
Employers in the private sector must now take note of the option allowed by law in respect of deduction of NHF Levy. Employees must now be made to confirm their desire to continue contributing or otherwise, and for those that choose to continue contribution, the 2.5% will now be based on the monthly gross salary instead of the 2.5% previously charged on basic salary.
Also, it is important to note that while the amendment to the ISA suggests that private companies may now offer their shares to the public for subscription, there is still a need to reconcile this provision with Section 22 of CAMA which restricts private companies from doing so, to avoid uncertainties in the business space. In the same vein, while the deletion of the monetary threshold for determining a company’s inability to pay its debts in CAMA will enable quick updates via Regulations in view of fast-changing economic realities, care must be taken to avoid arbitrary upward adjustments of this amount so as not to make doing business even more tedious especially for small businesses. That is, small businesses may suffer unduly where this amount is increased beyond what is fair and reasonable, thus making it more difficult for these businesses to thrive.
The success or otherwise of the BFA will largely depend on the compliance of MDAs to the requirement for them to publish their list of requirements and having this list updated whenever changes occur. The willingness and ability of agencies to collaborate effectively in delivering services and providing oversight to businesses will also go a long way in seeing to the success of the Act.
Finally, the general public, especially owners and managers of businesses are urged to seek professional advice in respect of any of the changes brought about by the BFA to ensure compliance and full enjoyment of attendant benefits of the new provisions of the extant laws.
Corporate culture refers to the values, beliefs, and behaviours that determine how a company’s employees and management interact, perform, and handle business transactions. It comprises values, beliefs, ethics, and attitudes that identify an organisation and guides its practices. Organisational culture sets the context for everything that describes an organisation and how an organisation is perceived.
No one-size-fits-all culture template meets the needs of all organisations as industries and situations vary significantly. According to Senior and Fleming (2006), organisational culture will continue to remain a source of competitive advantage as it has come to embrace much of what is included in the hidden part of the organisation and plays an important role in enhancing or hindering the process of change.
Organisational Culture can be demonstrated, in a variety of ways such as leadership style, dress mode, team structure, and corporate communication, and can be instilled in the mindset of employees on a daily basis, either through meetings, team collaboration, training, company programs, townhalls, and many more.
One of the most critical issues facing organisations is how to retain employees, employees may leave an organisation for various reasons which may include inefficient management, lack of growth and progression, inadequate compensation, and poor culture.
A Columbia University study shows that the likelihood of job turnover at an organisation with a high company culture index is a mere 13.9 percent, whereas the probability of job turnover in low company cultures is 48.4 percent.
What are the Elements of Corporate Culture?
Vision A great culture starts with a vision and or mission statement. These simple turns of phrases guide a company’s values and provide it with purpose, which determines and sways employees’ decisions. Research indicates that more engaged employees are more productive, and they are more effective corporate ambassadors in the larger community. Employees who find their company’s vision meaningful have engagement levels of 68%, which is 18 points above average (Fernandes, 2019).
Values This is an integral part of any organisation; it defines the atmosphere of a workplace. They are guiding principles every employee of a particular organisation should emulate. Core values vary from business to business, they create unity amongst workers. No matter the service a company provides, a strong, well-defined set of company values can attract new employees, keep current employees happy and retain them whilst increasing overall workplace productivity.
Work Environment A flexible working environment has a high impact on employees. Opperman (2002) defines the working environment as a composite of three major sub-environments: the technical, human, and the organisational environment. Technical environment refers to tools, equipment, technological infrastructure, and other physical or technical elements that enable employees to effectively perform their respective responsibilities and activities. The human environment refers to stakeholders holistically; peers, subordinates, seniors, and others with whom employees relate, teams and work groups, interactional issues, leadership, and management. This environment is designed in such a way that it encourages informal interaction in the workplace so that the opportunity to share knowledge and exchange ideas could be enhanced. This is a basis to attain maximum productivity. Organisational environment includes people, systems, procedures, practices, values, and philosophies.
A good work atmosphere exhibits a positive path toward job satisfaction and this in turn generates positive attitudes. A company’s work style affects how many employees they can retain; a Quantum Workplace report also found that employees who are offered flexible work options are four times less likely to become a retention risk. All these are facilitated by the human environment.
Compensation This accounts for a high percentage of why an organisation can lose its best hands. Compensation does not only include salary but also benefits and other perks. Every employee regardless of their field wants to know that her compensation is competitive with what others who perform similar work in other organisations are earning.
Asides from periodic salary increases, as well as growth entitlements, bonus and awards are also excellent ways of retaining employees as it makes them feel appreciated and increase morale and enthusiasm.
Over 70% of employees say that lack of recognition from their employers may make them change employers. Recognising an employee promotes motivation, and communicating with employees to know what motivates them shows that they are important and will likely put in more work. Recognition may be a flexible work schedule, internal recognition, or promotion.
Standards and Policies Organisational rules are also a strong determinant of employee retention. Policies that do not support the growth of its employees, will result in a high employee turnover. Without a clear career path/ growth path, employees are likely to become unsettled, disgruntled and eventu
ally move to another employer. As humans we like to grow and not remain stagnant, as such, employees need to know that they are working towards some progression that they can clearly see, measure, and can achieve in the organisation where they work. Also, policies like exam leave, staff leave, and compassionate leave should be made effective in the workplace.
Leadership It is mostly said that people quit their bosses, not their jobs. In order to keep employees, organisations should look inward into their people management, task distribution, goal, priority setting, and overall staff engagement. Leaders who do not engage their staff are likely to lose them, they must create an environment where their subordinates feel supported, motivated, respected, valued, and have a sense of purpose. Constant communication is very important in this regard, as this also mitigates the effect of burnout; Microsoft found that high productivity can mask an exhausted workforce as 20% of workers say their employers do not care about work-life balance, 54% feel overworked and 39% are just exhausted. Leaders must always model the company’s values
CONCLUSION A healthy corporate culture creates an environment for passion- and excellence-driven work; it strengthens interpersonal relationships, and creates a sense of ownership in the hearts of employees regarding the organisation. When people feel like they belong to an organisation, they become vested, they feel secure, heard, and are likely to stick around for a long time because they see themselves in the picture of the future that the organisation represents and are proud to be associated with what they have helped build.
Increased employee engagement can reduce the high rate of employee retention as engaged employees are likely to stay loyal to their organisation, and a healthy corporate culture is a tool to optimising this engagement and getting employees to be more involved in the business of running of the business, beyond their daily tasks.
For assistance in the design and implementation of your corporate culture as a tool to reducing staff turnover, and for improved productivity, send us an inquiry to mc@pedabo.com
News
Federal Inland Revenue Service and Lagos State Internal Revenue Service Sign a Memorandum of Understanding on Joint Tax Audits, Investigations and Automatic Exchange of Information
Introduction On the 8th of February 2023, the Federal Inland Revenue Service (FIRS) signed a Memorandum of Understanding (MOU) with the Lagos Internal Revenue Service (LIRS), to kick start the implementation of joint tax audit, investigation exercise and the automatic exchange of information between the revenue agencies.
Objectives of the MoU
The FIRS and LIRS team will collaborate on tax audits and investigation exercises.
There will be automatic exchange of information for data gathering for the purpose of tax administration.
The MoU will create a capacity building opportunity where both revenue agencies can learn from each other. It is believed that this MoU would assist in bridging the information and knowledge gap as well as any variation between the apex tax authority and the state tax authority.
The MoU will also help increase revenue generation for both the Lagos State Government and the Federal Government to enable them meet infrastructural targets and fund their budgetary requirements.
The MoU will address issues on duplication of efforts and facilitate the exchange of data that is relevant to the enforcement of extant tax laws.
To reduce the cost of tax collection and improve taxpayers’ satisfaction.
As a result of the joint tax audit, there will be an implementation of presumptive tax regime on taxpayers. The presumptive tax would be for the purpose of personal income tax and ground rent administration in Lagos State.
Effects of the MoU on Taxpayers
As a result of the MoU signed by the tax authorities, taxpayers should:
Comply with all tax obligations and statutory requirements as taxpayers may be more exposed to high scrutiny by both the State and Federal tax authorities.
Ensure that proper and adequate records are kept for both personal and corporate tax matters.
With the likely implementation of presumptive tax, some taxpayers may be affected, and it is therefore paramount that relevant documentation be put in place to ensure compliant taxpayers are not assessed to arbitrary taxes.
OUR COMMENTS
The execution of the MoU by the FIRS and LIRS is one of the measures to set the pace for a joint tax administration between the State Governments and Federal Government, even though the implementation date has not been announced. It is expected that the success of this MOU may encourage more States to go into similar partnerships with FIRS. We expect that adequate and appropriate implementation of this approach would give room for quicker audit resolution, reduce costs (for the revenue authorities and taxpayers), streamline facts-finding approach adopted by different tax authorities, reduce burden of multiple tax audits of similar transactions, and encourage effective compliance by taxpayers.
The success of this initiative is dependent on how the agencies can drive and maximize the
mechanisms and processes to be established. Adequate and appropriate mechanisms should be put in place by both agencies to ensure a smooth implementation of the exercise, considering that a similar approach was introduced in the past by FIRS to jointly audit taxpayers, but it failed the purpose.
The above notwithstanding, if this initiative is objectively implemented, it will ease the burden of corporate taxpayers who are faced with multiple visits by different tax authorities. The initiative will potentially not only increase tax revenue accruable to governments by enlarging the tax net, but also eliminate possible tax evasion. The tax agencies should also put forth proper guidance and notice to the public for proper sensitisation to ensure the cooperation of taxpayers.
News
TAT Rules that NITDA Levy not Applicable to Network Facilities Providers
The Tax Appeal Tribunal (“TAT”) in Lagos, has held in the case of INT Towers Limited (“INT Towers” or “the Company”) v. Federal Inland Revenue Service (“FIRS”) that network facilities providers are not telecommunication companies and as such, are not liable to pay the National Information Technology Development Agency (NITDA) Levy.
Highlight of the Case INT Towers Limited is a telecommunication infrastructure support service provider. The Company has been filing its annual tax returns since it commenced business as a telecoms support service provider without the NITDA Levy. However, upon filing the 2021 YOA returns via FIRS TaxProMax platform, the Company was charged 1% of its profit before tax as NITDA Levy under the provisions of the NITDA Act, on the basis that the entity is a telecommunications company.
The Company objected to the assessment on the ground that the FIRS has misconceived its nature of business since it is merely an infrastructure service provider and does not render any telecom service whatsoever. Amongst other issues, the Company prayed the TAT to determine whether the Company is a telecoms company and whether it is liable to payment of the Levy computed at 1% of PBT in line with the provisions of the NITDA Act.
On the other hand, FIRS argued that the Company was a licensee of the Nigerian Communications Commission (NCC) and also a beneficiary of the pioneer status incentive under the telecoms industry. According to FIRS, the combined effect of these is that INT Towers qualifies as a telecoms company which is subject to the provisions of the NITDA Act, and by extension liable to pay the NITDA Levy.
In determining the case, the TAT held that the Company’s license is to provide infrastructure sharing and colocation services as a network facilities provider, thus merely a service provider to entities operating in the telecoms sector, and not in itself a telecoms company. Consequently, the assessment raised by FIRS in this regard was discharged.
OUR COMMENTS The crux of the case is determining whether or not the network facilities providers, such as INT Towers in this case, which typically provide collocation services, are to be considered as telecommunications companies liable to pay the NITDA Levy.
Generally, the NITDA Act provides for the payment of a Levy of 1% of PBT of specific companies and enterprises with an annual turnover of ₦100m and above. These companies listed in the Third Schedule to the Act are:
GSM Service Providers and all Telecommunication Companies
Cyber Companies and Internet Providers
Pension Managers and Pension-related Companies
Banks and other Financial Institutions
Insurance Companies
From the above specification, it is clear that FIRS had categorized INT Towers as a telecommunication company which has a responsibility to pay the Levy. This brings us to the question: are network facilities providers the same as network service providers?
The Nigerian Communications Act 2003 defines a ‘network facilities provider’ as ‘a person who is an owner of any network facilities’, while defining ‘network facilities’ as ‘any element or combination of elements of physical infrastructure used principally for or in connection with the provision of services…’. These definitions do not infer the provision of ‘network service’ which was distinctly defined as ‘a service for carrying communications by means of guided or unguided electromagnetic radiation’.
The above-quoted definitions prove that network facilities providers differ from network service providers, and the TAT in the instant case agrees.
This judgement is instructive as we align with the thoughts of the TAT in this regard. Based on the provisions of the relevant extant laws and even the nature of activities carried out by the entity, it is clear that INT Towers as well as other entities carrying out similar services cannot be deemed to be telecommunication companies and as such not required to pay the NITDA Levy.
The main distinction to note here is the fact that a service provider’s clientele portfolio consists entirely of entities within a particular sector, does not by implication qualify the service provider as a company within the sector to which it renders services. This reasoning can be stretched further in comparing “insurance companies” mentioned in the law, to “insurance brokers” not mentioned.
Therefore, following the literal rule of interpretation of statutes, the NITDA Act only imposes the Levy on GSM service providers and telecommunications companies and not network facilities providers such as INT Towers.
We hope that the rationale behind this judgement is adopted and that the provisions of the law are strictly adhered to by the tax authority, to ensure that taxpayers are not exposed to tax liabilities to which they have no obligation. The classification of taxpayers on the Taxpromax has resulted to various disputes arising from wrong imposition of taxes on the entities. In order to avoid unnecessary disputes between the taxpayers and the tax authority, it is important that the Taxpromax platform be reconfigured to ensure that only qualifying companies are charged the NITDA Levy as well as other industry-specific taxes/levies.
Finally, taxpayers are implored to seek professional advice where there is uncertainty with regards to their tax obligations and responsibilities to avoid running afoul of the law.
A business plan is like a roadmap, a few lucky organisations may thrive without having it documented – though one exists within the mind of the driver – but having a documented plan certainly reduces the chance of losing focus and getting distracted anytime a seemingly bright opportunity comes along. Enterprises, whether large or small, cannot hope to significantly compete and expand in today’s global and fiercely competitive marketplace without effective planning. A business plan is a written document that details the company’s concept and all the necessary internal and external factors involved in starting a new firm in line with its business focus. It outlines the nature, context, and strategies for utilising the business’ prospects. The functional plans in finance, marketing, production or operations, information technology, and human resources are typically integrated into the overall business plan. A business plan is also a blueprint that outlines the entrepreneur’s goals and critical factors that will determine the success of a business. It must define where you are, where you want to go and your proposed route to get there. It is a valuable document important to entrepreneurs, investors, and also employees for several reasons, some of which are outlined below:
aids in determining the venture’s viability in a target market;
helps entrepreneurs launch their businesses;
the process of creating a business strategy forces the entrepreneur to consider potential obstacles to the venture’s success, as well as look deeply into its potential competitors;
helps in defining the best capital gearing, and becomes a tool with which to obtain finance by serving as a guide to investors;
primary stakeholders, i.e., the founders are forced to consider every possible facet of the business whilst working to develop the business plan (whether by themselves or in collaboration with a consultant);
it is expected to express the founders’ vision and objectives when well-written;
it assists in identifying the crucial factors that will decide the company’s success or failure;
as an employee who is a part of the process, it helps you assess your alignment with the company’s vision, and helps you better identify where you fit in and potentially what your growth opportunities are.
Given Pedabo’s experience over almost 3 decades, it begs the question – Without a plan, do businesses really stand a chance of success? We daresay that no business actually starts off without some modicum of a plan. Yes, it may not be documented. Yes, it may be in response to a quick opportunity that was spotted and not some innate vision or long-standing passion, or just in response to a need for survival, but inherently, there is some ‘plan’ that guides an entrepreneur into believing that he or she can deliver on a certain idea. Similarly, developing a business plan is generally considered as part of a required stage in the startup process in the majority of recommendations for entrepreneurs. As such, they must be seen to be valuable or at least seen to significantly increase the chances of success if so many individuals and research studies advocate for it!
There has been a lot of debate in recent years about the true value of business plans, particularly if their existence could be directly correlated to the success of a company. Some schools of thought infer that planning in itself has no guaranteed positive impact given that some businesses are able to achieve great success despite not having formal business plans. What, however, are the daily contextual realities of such companies? In our experience, we find that such companies are those where the owners / founders are very actively involved in the daily operations, and in the very early stages, almost every primary activity revolves around them and their daily direction as they are effectively the organisation’s roadmap. How truly sustainable is this? For many owners/founders who fall in this category and are forward-thinking, we have found that they very quickly realise that this comes at a high cost to their sanity and a high risk to the continuity of their businesses, and thus begin to seek out ways to structure – devolve their powers to team heads they can trust – develop systems & processes – document – to ensure their businesses can operate successfully without them. It is important to note also, that according to research, the question is not actually about “developing a plan” or “not developing a plan”, but rather “what kind of plan do you undertake and how much effort are you required to put into it to succeed?”
Planning can speed up a Company’s Growth by up to 30 percent According to a research by the University of Oregon, businesses that plan, grow 30% quicker than those that do not. This study indicated that while many firms can succeed in the short term without a plan, those with a plan grew quicker, and overall, were more successful than those without one.
Another study from the same source indicated that fast-growing companies — those with sales growth of over 92 percent from one year to the next — typically had business plans, which further supports the link between planning and rapid growth. In fact, 71 percent of rapidly expanding businesses have working plans. They develop targets for sales, make budgets, and monitor these plans actively. These businesses frequently use terms like strategic plans, growth plans, and operational plans instead of constantly referring to their plans as “business plans”, and this is because they are agile and constantly evolving with the business environment and competitors’ performance. Whatever their long or short-term plans are called, they are all working together towards the organisation’s focus on planning for its future.
Planning enhanced business success was the conclusion, according to a study by Brinckmann, J., Grichnik, D., & Kapsa, D. (2010) that compiled research on the expansion of 11,046 businesses. Interestingly, this same study discovered that planning helped established businesses much more than it helped startups. The reason for this is probably that established companies are better familiar with their clients’ demands than are startups. Planning for an established business entails fewer guesses or presumptions that must be supported, therefore the strategies they create are better informed given the availability of working data. In Nigeria, 61% of Nigerian startups fail in the first 9 years (BusinessDay, 2020). Similarly, in the US, it is noted that about 543,000 new firms open each month, yet only seven out of ten survive in the first two years, while only five out of ten survive after five years. Surprisingly, 70% of companies that last for five years are said to do so because they have a comprehensive business plan (Nazar, 2013).
Sometimes it seems that only large organisations benefit from having a written (formal) business strategy in place. Obviously, because of the resources required, there are few small enterprises that have formal documented business plans, and even fewer that have some informal owner / founder-managed plans. According to 2015 Barclays data, 23% of small enterprises in the UK do not have a business plan. In the UK, formal (written) business plans are present in around half (47%) of small enterprises, while informal (spoken) plans are present in the remaining 30%. (Talk Business, 2016).
Further, it is said that more than 30% of small enterprises fail within the first three years of operation if they do not have a business strategy (Francis J. Greene & Hopp, 2017). Thus, the success rates for business plans appear to be evident.
In the First Five years, 50% of new Businesses Fail It is said that 50% of newly founded companies fail within five years; why is this? According to several schools of thought, it frequently occurs as a result of businesses ignoring the direction of a set business plan or the nonexistence of a plan to begin with. To emphasize, 25% of enterprises without a business plan fail within the first two years of operations. 10% of businesses fail within the first five years of operations, whereas only 6% fail within the first ten (SBT, 2017). In other words, the longer you stay in business, the more likely you are to learn from the marketplace and establish a set of working patterns (a plan) that could drive your success. If you had however devoted some time and resources to a study of those patterns prior to commencement, chances are that you could have saved your enterprise some deeply struggling years. Similar to major companies, small companies need to have a clear business plan – strategy and roadmap – if they want to succeed (Koulopoulos, 2016).
Summarily, to specifically address the question, what are the odds that a business will succeed without a business plan? A business can succeed without a business plan and there are indeed examples of such large companies– albeit outliers – that are able to succeed, especially, at the onset. However, it is more likely that organisations without a set business plan will make a lot of thoughtless errors and that their rate of growth would be greatly impeded, in comparison.
A strong business plan goes beyond market analysis coupled with vague revenue projections for an investor pitch. Like a professional sports team has a playbook, a strong business plan has one too; action plans about what to do when the business is at the final and critical moment or moments of a tense, important, or desperate situation; including a feature roadmap, a target market strategy, and secondary markets to explore when the primary markets are saturated; action plans in case the intended target market’s response is different from that which was anticipated; techniques for strengthening the team as the business expands, etc. These are invaluable learnings from the process of development of a business’ strategy and associated plans. Most businesses that just move with the flow do not end up getting very far, though they may not join the classification of failed enterprises. They, however, eventually realise that they are wasting their time in an endless cycle of repetitive mistakes.
CONCLUSION Creating a business strategy is an essential step in ensuring the long-term success of any enterprise. The advantages of having a business plan far outweigh the inconvenience or the resources expended, as there is definitely no disadvantage in taking a deeper look into the business area you intend to venture. Business planning helps businesses not only succeed but also have a better chance of surviving any industry disruptions, evolution, or unforeseen occurrences. It has a way of setting an enterprise up for effective continuity.
The good news is it is not all gloom and doom, even if perchance you realise that you did not get off to a great start or the last year has been you potentially playing ‘catch up’, or you are able to identify your enterprise in one of the less exciting growth stages discussed above, it is very possible to retrace your steps, put in the time, effort and resources required, and set your enterprise up for a new beginning, and what better time to look into those possibilities than at the beginning of a new year.
To get you started, below are some key activities to keep in mind when creating a business plan for your startup or a growth plan for your existing business:
set goals – financial goals, brand goals, client goals, and staffing goals (to mention a few). Be clear and explicit about what you want your organisation to attain;
you can decide to forego the 80-page business plan and instead have a business model canvas or 3 sacred strategy slides; concentrate on basic preparation that outlines your objectives and compiles information on your market and your clients’ needs that will facilitate your meeting those objectives;
understand your strengths so you can optimise and leverage them and identify your weaknesses so you can properly align with the market opportunities that perhaps do not require those skills whilst you grow;
know every aspect of your industry/market, so you can adequately identify opportunities and avoid threats where able. You cannot properly position your enterprise to penetrate a market you do not understand;
start early with your planning – plan for the year, for each quarter, to achieve your annual goals, and know what targets you must reach each month, each week. Break down your goals;
as you gain more knowledge about your operations, frequently modify your plan;
more essentially, revisit your strategy, develop and update it as you gain knowledge about your market and clientele;
develop a roadmap, but do not just file it or store it in a drawer. Monitor your performance to see if you are making progress toward your objectives. Your plan will assist you in identifying what is effective and what is not, and these adjustments can continue as you grow your firm.
The management consulting team at Pedabo is equipped to assist you with your corporate strategy review and/or development to get you started on the right path for 2023.
Any enquiries? Send an email to mc@pedabo.com
News
THE NIGERIA STARTUP ACT 2022: GOVERNMENT INTRODUCES NEW TAX REGIME FOR STARTUPS
The Nigeria Startup Act 2022 (“Startup Act” or “the Act”) was recently signed into law by the President of the Federal Republic of Nigeria, with a commencement date of 19 October 2022. The Act provides for the establishment and development of an enabling environment for technology-enabled startups in Nigeria. As a means of creating this enabling environment, Part VII of the Act contains tax and fiscal incentives which qualifying startups may enjoy in a bid to encourage participation and investment in startups in the country.
The Act defines a ‘startup’ as a company in existence for not more than ten (10) years, with its objectives as the creation, innovation, production, development or adoption of a unique digital technology innovative product, service or design. The startup to which the Act will apply must also be a holder or repository of a product or process of digital technology or be the owner/author of a registered software, with at least one-third local shareholding held by one or more Nigerians as founder or co-founder. The Act does not apply to any organization which is a holding company or subsidiary of an existing company not registered as a startup.
Where a company qualifies as a startup in line with the Act, such company is eligible for ‘labelling’ by the issuance of a certificate by the Secretariat of the National Council for Digital Innovation and Entrepreneurship (“the Council”).
Tax & Fiscal Highlights of the Startup Act
Expedited Pioneer Status Incentive (PSI): Labelled startups which fall within qualifying industries under the PSI scheme, may apply through the secretariat to receive expeditious approval from the Nigerian Investment Promotion Commission for the grant of tax reliefs and incentives.
Relaxation of Fiscal Incentives Conditions: The Act provides that the Federal Government through the Ministry of Finance, may ease the requirements necessary for a startup to enjoy existing fiscal incentives, irrespective of the provisions of any other law.
Exemption from Companies Income Tax: A labelled startup may be entitled to exemption from the payment of income tax in line with the provisions of the Industrial Development (Income Tax Relief) Act. The exemption will cover an initial period of three (3) years and an additional two (2) years if the entity still qualifies as a labelled startup. To determine the exemption period, the date of issuance of the startup label will be deemed the commencement of the tax relief.
Unrestricted Tax Deduction of Expenses on Research & Development: Labelled startups are eligible to enjoy full deduction of expenses on research and development provided that these expenses are wholly incurred in Nigeria. As an added incentive, startups are not bound by the restrictions contained in the Companies Income Tax Act in respect of these expenses.
Reduced Withholding Tax (WHT) for Qualifying NRCs: Where a non-resident company provides technical, professional, management and consulting services to a labelled startup, the income derived by such NRC in respect of the services provided is subject to WHT at 5%. The WHT deducted is considered the final tax in respect of such income.
Exemption from Industrial Training Fund (ITF) Contributions: Labelled startups are exempted from payment of the ITF Levy provided they offer periodic trainings to the employees during the period they qualify as a startup.
Exemption from Capital Gains Tax: Chargeable gains accruing to an investor of any kind from the disposal of assets with respect to a labelled startup are exempt from capital gains tax provided that such assets being disposed have been held in Nigeria for at least 24 months.
30% Tax Credit to Investors: An investor in a labelled startup is entitled to a tax credit of 30% of the investment in the startup but such tax credit is to be applied only against any taxable gains from the investment.
Guaranteed Repatriation of Investment Net of Taxes: Foreign investors are guaranteed repatriation of proceeds of their investment in a labelled startup through an authorized dealer net of all taxes, provided that the investors had obtained a Certificate of Capital Importation (CCI) as evidence that the capital injection was through approved channels.
Other Fiscal Obligations: A labelled startup has an obligation to: Comply with extant laws governing businesses in Nigeria Provide information on total assets and annual turnover achieved from the period the startup label was granted Maintain proper books of accounts in line with reporting obligations under extant laws Provide an annual report on incentives received and advancements made by virtue of the incentives.
Our Comments
The enactment of the Startup Act is indeed a laudable initiative by the Federal Government, especially considering the need to encourage young Nigerian entrepreneurs in the field of technology and innovation. The infusion of tax incentives in the Act demonstrates not just the desire of government to attract investments to the sector but also to help see startup businesses beyond their years of formation by lightening their tax burdens during their early years.
Although the Startup Act is targeted at entities which create, develop, or adopt unique digital technology innovative products, services or designs, these entities are still bound by the provisions of other extant tax laws, other than where the Startup Act expressly states otherwise. The implication therefore is that labelled startups must be conversant with the various tax and non-tax laws that impact their businesses, while noting the supremacy of the various positions.
We note that following the passing of the Act, small and medium scale enterprises (SMEs) are expected to have easier access to government grants and other loan facilities administered by the Central Bank of Nigeria and other statutorily empowered bodies. If this is achieved as intended, it will positively impact on the economy as SMEs constitute one of the largest employers of labour in the country, contributing about 48% to the national gross domestic product (GDP) in the last five years. This contribution can only go up in the years following the implementation of the Startup Act.
However, we expect to see effective inter-agency collaborations in order to enable the Act achieve its aims. Of particular interest is the collaboration between the National Council for Digital Innovation and Entrepreneurship, the Federal Inland Revenue Service (FIRS) and the Nigerian Investment Promotion Commission (NIPC), with respect to the implementation of the tax reliefs and incentives granted to startups as well as to investors of various genres.
Finally, we implore founders, investors and other stakeholders of startups to seek professional advice particularly in respect of the possible tax obligations, reliefs and incentives that are available to them under the Act, as this will aid compliance which will in turn help to generate the desired results.
