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Why SMEs wealth is not diversified

Multiple taxes remain a problem as the constitution gives the 3 government tiers distinct taxing powers.

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Nigeria became Africa’s largest economy in 2014 when its gross domestic product (GDP) data was rebased but the country lags behind South Africa, the second-largest, in terms of the tax to GDP ratio. That is not all. While Nigeria’s tax to GDP is estimated at about 6%, South Africa’s is 28%, and the average tax to GDP in Sub-Saharan Africa is 17%.

What could be responsible for this disparity? A recent Small and Medium Enterprises survey conducted by PricewaterhouseCoopers (PwC) and obtained by Nairametrics revealed that business owners, especially SMEs would suffer more from the development, as it found that Nigeria probably has more tax authorities than any other country in the World with the exception of the United States. But, unlike Nigeria’s tax administration system, the United States’ tax to GDP ratio is 26% (over 4 times higher than Nigeria’s) with a much more robust database of taxpayers and payments.

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READ ALSO: IATA raises alarm over excessive charges on Nigerian airlines, others

Findings of the survey

PwC surveyed over 1600 business owners across 29 states (6 geopolitical zones in Nigeria) to bring more light to reasons SMEs employ over 80% of the workforce but wealth is not diversified.

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  • 49% of SMEs pay 20% to 40% of their income or profits on taxes and levies.
  • 28% of businesses pointed out that the Local government charges, taxes and levies were the most difficult to comply with. The average income tax rate for companies is about 32% and for non-incorporated entities 19.2%. This may mean that the local government actually accounts for the remaining 10% to 20% of the tax contribution from SMEs.
  • The percentages are significant when compared to actual contributions by LGAs to tax collection in 2019. Unlike data on Federal and State tax revenues, Local government tax revenues are relatively difficult to ascertain or obtain.
  • There is a need for consensus and collaborative dialogue from all public and private sector stakeholders in dealing with the data gaps, issues and challenges at the LG level.
  • Multiple taxes and levies remain a bane for tax-paying businesses in Nigeria, especially MSMEs.
  • The lack of coordination between federal and state tax agencies is also an issue. There are 36 state tax authorities in Nigeria, in addition to the Federal Inland Revenue Service (FIRS) and the local governments. Each of these entities has constitutional rights to raise taxes and this has given rise to increased tax burden and complaints from businesses.
  • Nigeria ranked 159th out of 190 economies on PwC’s ease of paying taxes index 2020.
  • The absence of a central technology platform stall ease of payment of taxes.
  • It took, on average, 343 hours for entities to comply with tax payments. This was the time taken to prepare, file and pay value-added or sales tax, profit tax, labour taxes and contributions.
  • Most businesses made, on average, 48 tax payments to the tax authorities in a year.

READ: IATA raises alarm over excessive charges on Nigerian airlines, others

What specific challenges do you encounter with respect to paying your taxes?

Specific challenges SMEs encounter with respect to paying your taxes

READ ALSO: How much longer will players in the telecoms sectors suffer multiple taxations in Nigeria?

Expert’s recommendations

Partner & Head, Private Wealth Services, PwC, Esiri Agbeyi, explained that for the nation’s economy to grow at the desired rate, a lot more of SMEs must be unicorns (i.e. a privately held startup company valued at over $1 billion). To achieve such a feat, she recommends:

  • Review Constitution and tax laws: Multiple taxes remain a problem as the Constitution gives the 3 government tiers distinct taxing powers. Businesses will continue to struggle with this problem unless something more concrete is done about excluding overlapping powers e.g. with consumption taxes. The tax laws should be reviewed and amended annually through Finance Acts. Over time, Nigeria can lean towards a lower direct tax on income and more indirect tax on spending as we find in developed economies.
  • Centralised administrative system: Deploying a single centralised technology platform for tax administration in the country will help to improve tax collection, enhance ease of payment, reduce the cost of tax collection, as well as a plug or eliminate the leakages in the system. The time saved in paying taxes could be put to more productive use by businesses and the nation as a whole.
  • Single Tax Authority: Most countries adopt the model of a single tax authority for tax administration of both corporates and individuals. This is the case with the UK’s HMRC and South Africa’s SARS. Both countries have significantly higher tax to GDP ratios than Nigeria. Companies are run by individuals. Linking both provides much gain in closing gaps on non-taxation or evasion. The reverse is the case when information is disaggregated across several tax authorities.
  • Formalise the informal sector: Multiple taxes may be an issue but what is worse is when tax is paid by a few and the tax net is not widened. Some say the missing piece has been the informal sector. However, players in the informal sector cry that they pay taxes too. The problem is there is no data and some of the taxes collected may only find their way into private pockets. Evening the playing field for all taxpayers would involve relaxing the entry rules and easing the barriers for informal businesses to get into the formal sector.

READ MORE: FIRS to brace up on tax compliance policies

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In all, it is important for the nation to consider these recommendations for higher tax revenues and more profitable SMEs, which would translate to a profitable economy. Whichever strategy Nigeria adopts, ensuring the SME sector is free of the burden of multiple taxes is very critical.

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Abiola has spent about 14 years in journalism. His career has covered some top local print media like TELL Magazine, Broad Street Journal, The Point Newspaper. The Bloomberg MEI alumni has interviewed some of the most influential figures of the IMF, G-20 Summit, Pre-G20 Central Bank Governors and Finance Ministers, Critical Communication World Conference. The multiple award winner is variously trained in business and markets journalism at Lagos Business School, and Pan-Atlantic University. You may contact him via email - [email protected]

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Currencies

Exchange rate gains big at NAFEX as forex turnover pops 916%

Forex turnover at the Investor and Exporters  window recorded a massive increase on Thursday

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FOREX, NAFEX market turnover drop by 59%, Naira crashes to N470/$1 as currency uncertainty worsens 

Nigeria’s exchange rate at the NAFEX window appreciated significantly to N385.50 during intraday trading on Thursday, August 6, 2020. In another development, the exchange rate at the parallel market remained unchanged on Thursday as it closed at N474/$1 after exchanging as high as N486/$1.

Market Watch

Parallel Market: At the black market where forex is traded unofficially, the Naira remained unchanged against the dollar for a second consecutive day to close at N474/$1 on Thursday, according to information from Abokifx, a prominent FX tracking website. This was the same rate that it exchanged on Wednesday, August 5. However, in sharp contrast, Nairametrics forex tracker obtained a price as high as N486/$1 from some traders suggesting market volatility still persist.

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READ MORE: Manufacturing sector in Nigeria and the reality of a “new normal”

NAFEX: The Naira depreciated against the dollar at the Investors and Exporters (I&E) window on Thursday, closing at N385.50/$1.

  • This represents an impressive N3.75 gain when compared to the N389.25 rate close that was reported on the last trading day, Wednesday, August 5.
  • The opening indicative rate was N386.88 to a dollar on Thursday. This represents a 91 kobo gain when compared to the N387.79 to a dollar that was recorded on Wednesday.
  • The Naira fell to as high as N393.05 during intraday trading before strengthening to the closed rate of N389. It also sold for as low as N383.75/$1 during intraday trading.

Forex is sold at several prices and at different times during the day.

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READ ALSO: How the Coronavirus has impacted Forex trading

Forex Turnover: Meanwhile, forex turnover at the Investor and Exporters (I&E) window recorded a massive increase on Thursday, August 6, 2020, as it rose by 916.77% day on day.

  • According to the data tracked by Nairametrics from FMDQ, forex turnover increased from $10.49 million on Wednesday, August 5, 2020, to $106.66 million on Thursday, August 6, 2020.
  • The forex turnover for the day is the highest daily volume recorded in about 3 weeks. The dollar supply which had remained weak improved significantly during the day’s trading.
  • The average forex sale for last week was a low volume of about $32 million which is a slight improvement on the $27 million that was recorded the previous week. FX turnover which topped the $100 million mark after weeks of very low volume, still falls short of the over $200 million turnover that was recorded in January.
  • Total forex trading at the NAFEX window in the month of July was $937 million compared to $875 million in June.
  • The exchange rate disparity between the official NAFEX rate and the black-market rate widened further on Thursday staying as wide as N88.5. Nigeria maintains multiple exchange rates comprising the CBN official rate, the BDC rates, SMIS, and the NAFEX (I&E window).

Exchange rate unification remains on the cards and yet to be implemented weeks after the central bank governor confirmed it will be executed.

READ ALSO: MTN Nigeria, IHS ditch CBN rate for NAFEX in revised tower agreement

COVID-19 Pressures

Nigeria’s airspace remains closed to commercial international flight operations and won’t be open till October 2020. Foreign travel has often been a source of demand for the greenback.

  • The recent demand for dollars at the parallel market is thought to be fueled by speculators.
  • The parallel market also caters to forex trades through wire transfers especially for buyers who cannot fulfil their dollar demands at the I&E window or the SMIS window.
  • The exchange rate for wired transfer is often at a premium to the black market rate.

Forex Challenges: Last few weeks have been most challenging for the foreign exchange market as it witnessed very low liquidity. The downward slide against the greenback and some other major currencies continued this week due to tightened liquidity in the system.

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  • According to a report from FSDH research, forex inflows into the I&E window had dropped significantly in the second quarter of 2020 on the back of lower foreign portfolio inflows.
  • Although there was a slight improvement in the month of July, the turnover of $937 million is a far cry from the $3.19 billion, $5.02 billion and $3.7 billion turnover that was recorded in the months of January, February and March respectively before the lockdown which was triggered by the coronavirus pandemic.
  • The low oil prices have constrained the CBN’s capacity to intervene further in the foreign exchange market as dollar inflow still remains very low.

The exchange rate has faced significant pressure in both the NAFEX window and the black market. The pressure stemmed from declining external reserves and falling oil price

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Nigeria’s top 10 agricultural exports hit N289.3 billion, as Sesamum seeds, Cocoa top list

Here is the breakdown of Nigeria’s top agricultural exports and top destination countries.

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Agricultural financing, Top AgriTech deals currently on sale in Nigeria – June 2020

Nigeria’s top 10 agricultural export is estimated to have earned the country about N289.3 billion in one year (April 2019 – March 2020). This is according to data collected from various foreign trade reports, as compiled by the National Bureau of Statistics (NBS).

A cursory look at the data showed that Sesamum seeds and Cocoa remain Nigeria’s biggest agricultural exports, with the two products jointly accounting for over 60% of the entire agricultural exports in the country.

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READ MORE: UPDATED: Nigeria’s foreign trade drops to N8.3 trillion, down by 18% in Q1 2020

Number Breakdown: Top ten Agricultural Exports in Nigeria

By operational definition, the NBS defined agricultural products as goods that come from the planting of crops and/or raring of animals. Here is the breakdown of Nigeria’s top agricultural exports and top destination countries.

  • Sesamum seeds: Sesamum seeds, the tiny, oil-rich seeds, have been Nigeria’s agricultural export biggest earner for some years. During the period under review, Nigeria made the sum of N112.8 billion from the export of the products and this accounted for 38.9% of the top 10 agricultural products. Top destinations for the product include Japan, China, Turkey, India, and Vietnam.
  • Cocoa Beans: Cocoa (Fermented, superior quality raw cocoa) exports is Nigeria’s second largest agricultural export. During the period under review, cocoa export was estimated to be N109.6 billion, accounting for 37.8% of the top agricultural exports. The top destinations for the product are Germany, Netherlands, Spain. Indonesia, Belgium, Malaysia, and Estonia.
  • Cashew nuts (In shell and shelled): Cashew nuts are Nigeria’s 3rd biggest agricultural export product. In one year (March 2019 – March 2020), Nigeria generated a total sum of N38.2 billion from cashew nuts export. The top destinations are Vietnam, India, USA, Russia and the Netherlands.
  • Frozen shrimps and prawns: Ranking 4th on the list, Frozen shrimps and prawns accounted for 3.4% of the biggest export in Nigeria, estimated to be N9.85 billion in the last one year. According to the breakdown, Netherlands, Belgium, France, Vietnam, and the USA are top destinations for the export of the products.
  • Natural cocoa butter: Natural cocoa butter ranks as Nigeria’s 5th biggest agricultural export product within the period. Nigeria generated the sum of N7.69 billion as revenue proceed from the export of cocoa butter. Germany and Estonia are top destinations for the product
  • Sesame oil and its fractions: Sesame oil, an edible vegetable oil derived from sesame seeds, ranks 6th on the list with an estimated export value of N3.1 billion
  • Other agricultural products on the top 10 list include Cotton, Agro-food items, Other cut flowers & flower buds of kind suitable ornamental purposes and Ginger. During the period, a total sum of N2.53 billion was generated from Cotton export, Agro-food items (N1.97 billion), Cut flowers and flower buds (1.96 billion) and Ginger (N1.43 billion).

READ ALSO: Nigeria’s oil crisis compounded as India’s fuel demand crashes by 60% 

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Upshots: Nigeria’s Agric. export may experience the biggest contraction in 2020

As at the end of Q1 2020, Nigeria’s total foreign trade was estimated at N8.3 trillion, an 18% decline when compared to N10.12 trillion recorded in Q4 2019. The decline in foreign trade showed the earliest sign of the impact of COVID-19 pandemic that led to disruption in cross border trade.

READ ALSO: Nigeria’s trade balance hits recession low, records N579 billion deficit in Q4 2019

Despite the gradual easing of lockdown in major economies, restrictions imposed on cross border movements still subsist and this may demand for the goods and commodity prices in the short to medium term.

On the flip side, Nigeria’s cocoa-industry association recently cut its output estimate for the 2020 main crop by 18%, citing the spread of the fungal black pod disease caused by heavy rains in the country’s main growing areas.

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Coronavirus

COVID-19 Update in Nigeria

On the 6th of August 2020, 354 new confirmed cases and 3 deaths were recorded in Nigeria.

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The spread of novel Corona Virus Disease (COVID-19) in Nigeria continues to record significant increase as the latest statistics provided by the Nigeria Centre for Disease Control reveal Nigeria now has 45,244 confirmed cases.

On the 6th of August 2020, 354 new confirmed cases and 3 deaths were recorded in Nigeria, having carried out a total daily test of 2,673 samples across the country.

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To date, 45,244 cases have been confirmed, 32,430 cases have been discharged and 930 deaths have been recorded in 36 states and the Federal Capital Territory. A total of 306,894 tests have been carried out as of August 6th, 2020 compared to 304,221 tests a day earlier.

COVID-19 Case Updates- 6th August 2020,

  • Total Number of Cases – 45,244
  • Total Number Discharged – 32,430
  • Total Deaths – 930
  • Total Tests Carried out – 306,894

According to the NCDC, the 354 new cases are reported from 17 states- FCT (78), Lagos (76), Kaduna (23), Ebonyi (19), Oyo (18), Nasarawa (17), Rivers (17), Delta (16), Kwara (15), Akwa Ibom (13), Edo (12), Ogun (12), Plateau (11), Kano (9), Bauchi (6), Borno (6), Ekiti (6).

Meanwhile, the latest numbers bring Lagos state total confirmed cases to 15,627, followed by Abuja (4,241), Oyo (2,825), Edo (2,340), Rivers (1,911), Kano (1,608), Delta (1,557), Kaduna (1,530), Ogun (1,428), Plateau (1,294), Ondo (1,243), Enugu (880), Ebonyi (838), Kwara (815), Katsina (746), Borno (634), Abia (625), Gombe (620), Osun (586), and Bauchi (574).

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Imo State has recorded 472 cases, Nasarawa (360), Benue (356), Bayelsa (342),  Jigawa (322), Akwa Ibom (234), Niger (226), Adamawa (176), Ekiti (159), Sokoto (154), Anambra (142),  Kebbi (90), Zamfara (77), Taraba (72), Cross River (68), Yobe (67), while Kogi state has recorded 5 cases only.

READ ALSO: COVID-19: Western diplomats warn of disease explosion, poor handling by government

Lock Down and Curfew

In a move to combat the spread of the pandemic disease, President Muhammadu Buhari directed the cessation of all movements in Lagos and the FCT for an initial period of 14 days, which took effect from 11 pm on Monday, 30th March 2020.

The movement restriction, which was extended by another two-weeks period, has been partially put on hold with some businesses commencing operations from May 4. On April 27th, 2020, Nigeria’s President, Muhammadu Buhari declared an overnight curfew from 8 pm to 6 am across the country, as part of new measures to contain the spread of the COVID-19. This comes along with the phased and gradual easing of lockdown measures in FCT, Lagos, and Ogun States, which took effect from Saturday, 2nd May 2020, at 9 am.

On Monday, 29th June 2020 the federal government extended the second phase of the eased lockdown by 4 weeks and approved interstate movement outside curfew hours with effect from July 1, 2020. Also, on Monday 27th July 2020, the federal government extended the second phase of eased lockdown by an additional one week.

 

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READ ALSO: Bill Gates says Trump’s WHO funding suspension is dangerous

DateConfirmed caseNew casesTotal deathsNew deathsTotal recoveryActive casesCritical cases
August 6, 202045244354930332430118847
August 5, 2020448904579271732165117987
August 4, 2020444333049101431851116727
August 3, 202044129288896820663225707
August 2, 202043841304888520308226457
August 1, 202043537386883420287225677
July 31, 202043151462879119565227077
July 30, 202042689481878519270225417
July 29, 202042208404873519004223317
July 28, 202041804624868818764221727
July 27, 202041180648860218203221177
July 26, 202040532555858217374223007
July 25, 2020399774388561116948221737
July 24, 2020395395918451216559221357
July 23, 2020389486048332016061220547
July 22, 202038344543813815815217167
July 21, 202037801576805415677213197
July 20, 2020372255628011215333210917
July 19, 2020366635567891115105207697
July 18, 202036107653778614938203917
July 17, 202035454600772314633200497
July 16, 202034854595769914292197937
July 15, 202034259643760613999195007
July 14, 2020336164637541013792190707
July 13, 202033153595744413671187387
July 12, 2020325585717401613447183717
July 11, 2020319876647241513103181607
July 10, 2020313235757092012795178197
July 9, 202030748499689512546175137
July 8, 2020302494606841512373171927
July 7, 2020297895036691512108170127
July 6, 202029286575654911828168047
July 5, 2020287115446451111665164017
July 4, 202028167603634611462160717
July 3, 2020275644546281211069158677
July 2, 2020271106266161310801156937
July 1, 2020264847906031310152157297
June 30, 202025694561590179746153587
June 29, 20202513356657389402151587
June 28, 20202486749056579007149957
June 27, 20202407777955848625148947
June 26, 20202329868455458253144917
June 25, 20202261459454977822142437
June 24, 20202202064954297613138657
June 23, 20202137145253387338135007
June 22, 20202091967552577109132857
June 21, 202020242436518126879128477
June 20, 202019808661506196718125847
June 19, 202019147667487126581120797
June 18, 20201848074547566307116987
June 17, 202017735587469145967112997
June 16, 202017148490455315623110707
June 15, 20201665857342445349108857
June 14, 202016085403420135220104457
June 13, 20201568250140785101101747
June 12, 20201518162739912489198917
June 11, 2020145546813875449496737
June 10, 20201387340938217435191407
June 9, 2020134646633654420688937
June 8, 2020128013153617404084007
June 7, 20201248626035412395981737
June 6, 2020122333893429382680657
June 5, 20201184432833310369678157
June 4, 2020115163503238353576467
June 3, 2020111663483151332975227
June 2, 20201081924131415323972667
June 1, 20201057841629912312271579
May 31, 20201016230728714300768687
May 30, 2020985555327312285667267
May 29, 202093023872612269763447
May 28, 202089151822595259260647
May 27, 202087333892545250159787
May 26, 2020834427624916238557107
May 25, 202080682292337231155247
May 24, 202078393132265226353607
May 23, 202075262652210217451317
May 22, 2020726124522110200750337
May 21, 2020701633921111190748987
May 20, 202066772842008184046377
May 19, 202064012261921173444757
May 18, 202061752161919164443407
May 17, 202059593881826159441837
May 16, 202056211761765147239737
May 15, 202054452881713132039544
May 14, 202051621931683118038154
May 13, 202049711841646107037374
May 12, 20204787146158695936704
May 11, 202046412421521090235894
May 10, 202043992481421777834794
May 9, 202041512391271174532784
May 8, 202039123861181067931154
May 7, 20203526381108460128184
May 6, 20203145195104553425071
May 5, 2020295014899548123704
May 4, 2020280224594641722912
May 3, 2020255817088240020702
May 2, 20202388220861735119522
May 1, 20202170238691035117512
April 30, 2020193220459731715562
April 29, 2020172819652730713692
April 28, 2020153219545425512322
April 27, 20201337644102559942
April 26, 20201273914152399942
April 25, 20201182873632229252
April 24, 202010951143312088552
April 23, 20209811083231977532
April 22, 2020873912931976482
April 21, 20207821172631975602
April 20, 2020665382311884662
April 19, 2020627862221704362
April 18, 2020541482021663562
April 17, 2020493511841593172
April 16, 2020442351311522772
April 15, 2020407341211282672
April 14, 202037330111992632
April 13, 202034320100912422
April 12, 20203235100852282
April 11, 202031813103702382
April 10, 20203051770582402
April 9, 20202881471512302
April 8, 20202742260442262
April 7, 20202541661442042
April 6, 2020238650351982
April 5, 20202321851331942
April 4, 2020214540251850
April 3, 20202092542251800
April 2, 20201841020201620
April 1, 2020174352091630
March 31, 202013982091280
March 30, 2020131202181210
March 29, 2020111221031070
March 28, 20208919103850
March 27, 2020705103660
March 26, 20206514102620
March 25, 2020517102480
March 24, 2020444102410
March 23, 20204010112370
March 22, 2020308002280
March 21, 20202210001210
March 20, 2020124001110
March 19, 20208000170
March 18, 20208500170
March 17, 20203100030
March 16, 20202000020
March 15, 20202000020
March 14, 20202000020
March 13, 20202000020
March 12, 20202000020
March 11, 20202000020
March 10, 20202000020
March 9, 20202100020
March 8, 20201000010
March 7, 20201000010
March 6, 20201000010
March 5, 20201000010
March 4, 20201000010
March 3, 20201000010
March 2, 20201000010
March 1, 20201000010
February 29, 20201000010
February 28, 20201100010

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