Small and medium enterprises (SMEs) are the bedrock of the Nigerian economy. SME serves as an important source of employment generation, economic dynamism, competition and innovation; thus contributing to national growth and poverty alleviation.

In order for SMEs to thrive, there is need to create a favourable business and regulatory environment. Most large companies have their roots in SMEs. In other words, the future large corporations in developing countries like Nigeria, are present day SMEs that need to be nurtured.

The significance of contributions of SMEs to economic growth is seen in more developed climes where their potentials have been successfully harnessed. For instance, SMEs accounted for about 20% of patents (a measure of innovation), in bio-technology-related fields in Europe in 2014. SMEs are also known to account for over 95% of businesses, 60-70% of employment, 55% of gross domestic product (GDP) and generate the lion’s share of new employment.

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Also, there are evidences to support the contributions of SMEs to economic development in many developing countries. However, the Nigerian government tends to focus more on larger corporations, with foreign investments, to the detriment of SMEs, whose activities are wrongly perceived to have insignificant impact on the economy.

This perception had since been debunked by evidence from antecedents of OECD countries, suggesting that SMEs have a high propensity to transform a country’s economy if a conducive environment is created for them to grow through appropriate regulation and tax policies.

In Nigeria, SMEs are subjected to multiple taxes by the different tiers of government, each with its own rigorous process and significant compliance cost. Considering the size of their operations, the absence of harmonized tax regime increases the strain on cash-flow and other limited resources of SMEs when compared to large corporations. SMEs are also regulated by several government agencies; thereby leading to significant regulatory compliance cost, which in most cases are duplicated

Though, there are numerous incentives and support facilities available to SMEs in Nigeria (e.g. the Federal Government Special Intervention Fund for MSMEs, Bank of Industry and the Central Bank of Nigeria’s Intervention Fund, etc.), access by SMEs to such incentives and facilities seems to have been hampered by bottlenecks. Also, lack of awareness of these government funds, absence of supportive environment and poor access to finance have reduced the competitiveness of SMEs in Nigeria.

The main objective of the new National Tax Policy (NTP) is to establish a robust and efficient tax system in Nigeria with focus on legislative amendments to reduce the tax burden on MSMEs. The NTP also proposed reduction of corporate tax rates and introduction of tax registration thresholds as an incentive to encourage compliance and protect MSMEs. However, taxes still appear to be a major constraint to the development of these SMEs in Nigeria.

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