Business entities in Nigeria may be set up using any one of three legal structures. These structures are Sole proprietorships, Partnerships or registered companies (which may be limited by shares, limited by guarantee or unlimited). The decision to adopt any of the above business structures should stem from a careful consideration of such factors as the start-up capital, the nature of business, the number of proprietors amongst other factors. Attached to each of these structures are also tax implications peculiar to them. That is, the tax liability of a business will depend on the legal structure adopted by its owner(s).

The law places no distinction between a sole proprietor and his/her business, the business is not taxed, rather a sole proprietor will be taxed based on the direct assessment of his profits/income.


What are Micro, Small, Medium Scale Enterprises (MSMEs)?


A major determinant of business structures and ultimately tax liabilities is the size of the business. A business operation may be classified as Micro, Small, Medium or Large Enterprise depending on the amount of investment, number of employees, revenue generated and so on.

MSMEs can either be a sole proprietorship, a partnership or incorporated as a Registered Company with the Corporate Affairs Commission, under the Companies and Allied Matters Act.

There is no exclusive definition of what businesses qualifies as a MSMEs, however for the purpose of concessions and special considerations, different agencies have proffered their definitions of what they consider as MSMEs.

For example, the Central Bank of Nigeria (CBN) as part of its developmental role, established the Small and Medium Enterprise Credit Guarantee System (SMECGS) for promoting access to credit by SMEs in Nigeria, define an SME as an enterprise that has asset base (excluding land) of between N5million – N500million, and labour force of between 11 and 30.

The Bank of Industry also defines, for the purpose of ascertaining the loan amount to be issued, a micro enterprise as one having 10 or less employees, total asset of N5million or less and an annual turn-over of N20 million or less. A small enterprise as one having employees between 11 and 50, total asset of N6 million to N100 million, and an annual turn-over of N100 million or less.

Furthermore, the Federal Ministry of Commerce and Industry defines SMEs as firms with total investment (excluding cost of land but including capital) of up to N750,000, and paid employment of up to 50 persons.


Why do MSMEs need special consideration?


MSMEs have in recent times, continued to play a cogent role in the world economy by contributing to the Gross Domestic Product (GDP) growth and sustaining employment. A survey carried out by the Small and Medium Enterprise Development Agency of Nigeria (SMEDAN) in conjunction with the Nigeria Bureau of Statistics (NBS) in 2013 revealed that MSMEs contributed about 48% of the nation’s GDP, and employed about 84% of the total labour force in the country.

The importance of MSMEs in an economy cannot be over-emphasized, hence the need to create a thriving environment for their operations as the growth of these businesses will also translate to the overall growth of the economy.

Notwithstanding the availability incentives and credit facilities for MSMEs, there is also a need for adequate awareness on access to, and a supportive environment for proper utilization of whatever funds is made available, and the overall success of the business, more especially in the area of tax liabilities.


MSMEs in Nigeria are however faced with the same tax regime as every other business in Nigeria, thus depriving them of much needed profits which can be re-injected into the business to stimulate its growth and expansion. This is in addition to other issues that stifle the growth of MSMEs in Nigeria such as poor infrastructures, high interest rates etc. Furthermore, the idea of claiming tax breaks and concessions are far-fetched and almost impossible to achieve because of the stringent conditions attached. This has led to the clamour for a separate tax regime with the consequence of reduced tax rate for MSMEs.


Special tax regime


Measures are being put in place to review the Nigerian tax policy as it currently stands, some of these measures are as follows:


  • National Tax Policy 2012

The National Tax Policy was made in 2012 under the supervision of the erstwhile Minister of Finance     (Dr. Ngozi Okonjo-Iweala). The Tax Policy was approved by the Federal Executive Council in 2017, it contains amongst others recommendations for a better tax policy and improved tax administration. The objectives of these policies are to tackle issues of multiple taxation by Governments at all levels, and lack of both accountability for tax revenue and clarity on taxation powers of each level of Government.

One of the key recommendations of the policy to tackle the above issues is to lower the tax rate and VAT compliance threshold for SMEs.


  • The Micro, Small And Medium Enterprises Encouragement And Financial Support Bill, 2017

This bill seeks to improve the efficacy of the SMEDAN as a body in charge of the affairs of MSMEs, it also provides for the following measures, amongst others, to be put in place as tools for the development MSMEs:

  1. Sensitization campaigns, especially in rural areas, to provide prospective entrepreneurs with the necessary information of sources and process of assessing funds.


  1. Establish a single taxing regime applicable to all MSMEs in Nigeria.


  1. Set an appropriate tax policy regime that will facilitate the smooth growth of MSMEs by introducing tax waivers, exemption and tax reduction.


  1. Consider other tax reliefs that will encourage the growth of MSMEs set up in rural areas or places with no adequate infrastructure in addition to those provided by the Companies Income Tax Act.



Currently in Nigeria, MSMEs are considered to be major contributors to the economy, especially in the area of job creation. These enterprises deserve the needed support that will nurture them through the formative years of business, and help transform them into even larger companies.

The government must provide an enabling environment for them through special tax considerations, incentives and concessions, and more importantly in the formulation of policies/regulations, especially in the area of tax liabilities.


This publication only provides general information about the law and does not constitute legal advice.

  1. 2018