Tax Relief and Nigerian Tech Startups

Yet, many people are unaware of the extent of the tax reliefs and incentives that are available because of the absence of an awareness campaign.

To cut down the margin of unemployment, it is pertinent to recall that the Federal Government’s effort to engage many Nigerians in small and medium-scale enterprises has been a major concern over the years… With the approval of tax reliefs for startups, more innovators will be able to take advantage of this incentive to build and grow profitable tech companies that will create jobs.

On May 18, the Federal Government announced the approval of tax reliefs for tech startups in the country. The news gave a euphoric feeling to Eddy Emmanuel and many other young innovators and entrepreneurs seeking opportunities to enhance their innovations.

The approval will enable the implementation of strategies to encourage and support the development and growth of more innovation-driven enterprises (IDEs) in the country.

Emanuel who studied Animal Husbandry developed a platform for community engagement in pasturing, trading, and live breeding to eliminate open grazing, which had led to conflicts between pastoralists and farmers. This has escalated into incessant attacks by so-called “unknown gunmen”, causing mayhem in some communities in Nigeria.

Without doubt, the introduction of these tax reliefs will allow him the resources to introduce more Nigerians to his improved and cost-effective digital system of pasturing without fear.

Bright Ubani and Uzor Chigozie Joshua, two pioneers who created a digital platform called Level Up, are equally pleased with the tax relief initiative. The goal of their platform is to promote a culture of free skills training among youths across the country. They started a community to community training initiative but were stymied by taxes, which frustrated their efforts to contribute positively to their communities.

Similarly, Lade Omoremi, an aspiring waste recycling innovator, lamented that taxes had discouraged her from nurturing her innovation into a profitable startup that will be of great benefit to her community.

Startups are organisations or projects at their early stage of operation, which are created by entrepreneurs to find, develop, and validate scalable business models. But startups in Nigeria are often overwhelmed by multiple taxes and levies when they venture to seek investors or begin operations.

… SMEs need to note that there are tax exemptions for small businesses with an annual turnover of less than N25 million. Startups in their early stages should be aware that a lower company income tax rate of 20 per cent is granted to companies whose yearly turnover is between N25 million and N100 million.

As a key factor in the progress of developing countries, startups contribute to enhancing the standards of living of local populations by introducing new technologies to them and attracting foreign investment, as well as enabling local innovators to address local problems with their innovations.

To cut down the margin of unemployment, it is pertinent to recall that the Federal Government’s effort to engage many Nigerians in small and medium-scale enterprises has been a major concern over the years.

With the approval of tax reliefs for startups, more innovators will be able to take advantage of this incentive to build and grow profitable tech companies that will create jobs.

For instance startups like Carbon, Jumia, Konga, and others have helped to create over 3,000 direct jobs in the country. According to Jobberman’s 2020 Digital Sector Report, Nigeria’s digital economy has the potential to create an average of 1.3 million tech-enabled jobs across all sectors by 2025, and the tax relief package will make it easier for this prediction to come into reality.

Yet, many people are unaware of the extent of the tax reliefs and incentives that are available because of the absence of an awareness campaign.

As such, SMEs need to note that there are tax exemptions for small businesses with an annual turnover of less than N25 million. Startups in their early stages should be aware that a lower company income tax rate of 20 per cent is granted to companies whose yearly turnover is between N25 million and N100 million.

The National Information Technology Development Agency (NITDA) needs to fashion out a comprehensive awareness creation programme to enlighten startups on the available tax reliefs and how to access such incentives with ease.

There are various incentives for investors and startups involved in venture projects. Eligible startups enjoy up to 30 per cent capital allowances on equity investments made by Venture Capital firms, along with a capital gains tax exemption of up to 100 per cent upon disposal of an equity interest.

Furthermore, in a bid to encourage the growth of the startup ecosystem, the Federal Government mandated companies to do business with startups on projects involving the central government or any of its agencies to enable them to thrive locally and internationally.

Most struggling startups believe that this tax relief package will enable them to revive and re-strategise to become viable enterprises that can thrive and grow.

The National Information Technology Development Agency (NITDA) needs to fashion out a comprehensive awareness creation programme to enlighten startups on the available tax reliefs and how to access such incentives with ease.

Equally, agencies like the National Office for Technology Acquisition and Promotion (NOTAP), Nigerian Investment Promotion Commission (NIPC), and others should partner with NITDA for the efficient implementation of these tax reliefs.

Such a collective approach would spur more indigenous innovators and boost the growth of the startup ecosystems to sustain Nigeria’s thriving digital economy.

Zeenat O. Sambo writes from Abuja.

By Premium Times.