Paying taxes as a small business and navigating taxation and compliance rules may seem very scary, but it is a critical aspect of your business’s financial management. Let me provide some backstory: Governments charge taxes to help provide public services, while compliance from businesses ensures that said enterprises operate legally without penalty. 

Now, did I hear you ask who collects taxes? The body responsible for overall tax collection for the Federal Republic of Nigeria is the Federal Inland Revenue Service (FIRS), while different states also have State Inland Revenue Services (SIRS). Unfortunately, however, many small businesses still struggle with tax payments and regulatory requirements either due to complex rules or lack of knowledge. 

This article explores the best possible ways to avoid tax and compliance penalties and uses Nigeria’s tax system as a case study. 

KINDS OF TAXES COMMON TO SMALL BUSINESS STRUCTURE

Since we have done a brief introduction on what taxes are and why they are important, let us examine the kinds of taxes that are more common to small businesses in Nigeria:

• Business Premises Tax (BPT): These are small levies charged by state governments in Nigeria on properties used for business such as shops, offices, and factories. The amount charged depends from state to state, and the location of the business property.
• Value-Added Tax (VAT): This is a tax on goods and services that businesses sell to the public. In Nigeria, all registered businesses are mandated to collect VAT and remit it monthly to the Federal Inland Revenue Service. Although many small businesses skip out on this, a penalty is available for such businesses. 

Note that Nigeria’s VAT rate is proposed to rise from 7.5% to 10% at the beginning of 2025, and is predicted to rise to 15% by 2027 or 2030.

• Customs Tax: Customs duties tax are taxes added on imported goods. In Nigeria, the tax percentage is not fixed however because it depends on the type of goods and the size of the shipment. But at least 5% to 35% is considered.
• Personal Income Tax (PIT): As the name suggests, this is tax paid individually by anyone who owns a business in the country. It is a percentage of your business profits. In Nigeria its rate depends on your income bracket and varies from 7% to 24%. 

IMPORTANCE OF COMPLYING WITH TAX REGULATIONS

Compliance refers to abiding by the taxation laws and regulations for your region. It may be difficult since you may be wondering ‘But my business is not big, why should I have to go through all of this stress?’ Yet you must comply to avoid risking legal issues or loss of reputation for your business. Ways to comply with taxation regulations include:

• Registering the business properly: To boost your business’s credibility and ensure transparency during taxation compliance, ensure that you go through all of the necessary steps to register your business. 
• Keeping audited financial records: This provides a comprehensive overview of your business’s financial performance. Always ensure that these records are prepared according to standards to avoid issues of transparency
• Filing accurate tax returns and reports: Do this on time to avoid pile-ups and mistakes which may lead to penalties.
• Staying up to date: Keep your eyes and ears open for changes being made to tax laws so you can comply with the latest requirements.

LEVERAGING PROFESSIONAL SERVICES AND TECH FOR COMPLIANCE

There are several kinds of accounting software like QuickBooks or Zoho Books your business could use that will help you track income, expenses, and tax payments, thereby reducing errors. 

Leveraging the professional help of Tax Consultants, Financial Advisors, and Business Advisors like us will guide you and provide any additional information you need regarding taxation and compliance regulations. 

CONSEQUENCES OF  NON-COMPLIANCE

The consequences of non-compliance as earlier stated include fines, legal prosecution, loss of company reputation, business liquidity, etc. 

Since we mentioned earlier that some small businesses do not pay the tax due to a lack of knowledge and the perception of tax payment difficulty on the tax regulations and processes, here are a couple of ways in which the government and other non-governmental organizations are making it easy regarding taxation and compliance in Nigeria. 

1. Creation of E-filing Systems: The Federal Inland Revenue Service has created self-service portals where Personal Income Taxpayers can file their returns electronically.
2. Taxpayer Education and Sensitisation: Several Government agencies, tertiary institutions, and independent business groups have taken it upon themselves to provide awareness for business owners on tax compliance.

CONCLUSION 

Understanding tax obligations, keeping proper records, and leveraging technology or professional help can make the taxation and compliance process easier. If your small business fails to comply, it faces financial, legal, and reputational risks. Therefore, small businesses must prioritize tax and legal responsibilities to ensure sustainable growth for their businesses. Proactive planning and proper management can help businesses navigate taxation and compliance smoothly. Finally, remember; when in doubt, seek the help of professionals.

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