INTRODUCTION
The Nigeria Tax Administration Act, 2025 (“NTAA”) and Nigeria Tax Act, 2025 (“NTA”) contain the concepts of “small business” and “small company” respectively, which have raised questions with respect to the intention of the draftsman as to whether small business and small company as used in both the NTAA and the NTA mean the same thing or are different.
SMALL BUSINESS AND SMALL COMPANY DEFINED
The NTAA defines a “small business”[1] as:
“a business that earns gross turnover of N100,000,000 or less per annum with a total fixed assets less than N250,000,000, provided that any business providing professional services shall not be classified as a small business.”
The NTA defines a “small company”[2] as:
“a company that earns gross turnover of N50,000,000 or less per annum with total fixed assets not exceeding N250,000,000, provided that any business providing professional services shall not be classified as a small company.”
SMALL BUSINESS VS. SMALL COMPANY: A DISTINCTION WITH A DIFFERENCE
Based on the foregoing definitions above, the intent of the draftsman is to maintain a dichotomy between a small business and small company. This raises the query as to when will the definitions of small business or small company be relevant?
A review of the relevant provisions of the NTAA and NTA seem to suggest that the concept of “small business” becomes applicable only in relation to Value Added Tax (“VAT”) issues while the concept of “small company” applies to income tax issues. The basis for this conclusion is addressed in the succeeding paragraphs.
The provisions of Section 22(4) of the NTAA exempts small businesses from the filing of VAT returns whether or not an economic activity has commenced. This means that companies with turnover lower than N100million and fixed assets of less than N250million are not under any compulsion to file VAT returns. On the other hand, by virtue of Section 56 of the NTA, small companies are liable to companies’ income tax at the rate of 0%. This means that companies with turnover lower than N50million and fixed assets of less than N250million shall not be paying companies’ income tax.
The impact of the foregoing analysis is that there is the possibility for a company to qualify as a “small business” for the purposes of exemption from VAT filings and compliance while the same company may not qualify as a “small company” under the NTA with respect to income taxes.
While it can be concluded that the concept of “small business” relates to exemption from filing of VAT, the provision of Section 22(7) of the NTAA appears to have used “small business” and “small company” interchangeably. In an attempt to provide guidance on how the relevant threshold for the purposes of determining the value of fixed assets, Section 22(7) provides as follows:
“In determining whether a person meets the threshold of being a small company, the value of the following taxable supplies shall be excluded –
(a) Supply of capital asset of the person;…”
Considering that the foregoing provision expressly mentions “small company” as opposed to “small business”, it is arguable that the provision of Section 22(7) of the NTAA with respect to the rules for determining fixed assets apply only to small companies for income tax purposes to the exclusion of small businesses. While this argument is plausible, the entire provision of Section 22 of the NTAA generally relates to VAT. Thus, it is arguable that the intention of the draftsman is that the rules under Section 22(7) of the NTAA should apply to small businesses. This position is further bolstered by the provisions of Section 22(7) of the NTAA which mentions “taxable supplies” which invariably relates to VAT.
CONCLUSION:
The provisions of Section 56 of the NTA and Section 22 of the NTAA seem to maintain a dichotomy between small companies and small businesses based on the relevant tax heads which they apply to. However, the nebulous nature of the concepts seem to have become evident in the confusing use of the “small company” under Section 22(7) of the NTAA. The various arguments raised in preceding paragraphs show the potential lacuna/lack of clarity which Section 22(7) of the NTAA seems to have introduced into Nigeria’s fiscal jurisprudence.
Please do not treat the foregoing as legal advice as it only represents the public commentary views of the authors. All enquiries on this should please be directed at the key contacts
Please do not treat the foregoing as legal advice as it only represents the public commentary views of the authors. All enquiries on this should please be directed at the authors.
