WHAT IS MY BUSINESS CATEGORY?

Micro, Small or Medium enterprise? Do you know what MSME category does your business fall under? This article aims to give an understanding to how businesses are categorized.

In Nigeria, micro, small and medium businesses are the most common business types. The Cable Newspaper stated that ‘In Nigeria, there are officially 41.5 million MSMEs, comprising of at least 41.4 million micro enterprises; and 73,081 small and medium enterprises. Together, they contribute about 50 percent of GDP, are responsible for 59.6 million jobs, which represent 86.3 percent of national workforce. They also contribute 7.64 percent of export receipts’ (Uwanaka, 2021). These businesses are generally defined by the number of employees. A micro business is a business with between 1-9 employees, a small business has between 10 – 49 employees and a medium enterprise has between 50 – 249 employees.

The Finance Act 2020 categorizes businesses based on the corporate tax liability on annual gross turnover/sales.  A small company is a company with an annual gross turnover/sales of ₦25,000,000 or less and they are exempted from paying company income tax. A medium company is a company with a turnover/sales of over ₦25,000,000 but below ₦100,000,000. The company income tax due is at the rate of 20%. A large company is a company with an annual turnover/sales greater than ₦100,000,000 and the company income tax due is at the rate of 30%. The Finance Act also includes a tax bonus. The bonus is a credit to be used against future tax if the tax due is remitted within three months after the company’s accounting year end. Medium sized companies are entitled to 2% of tax due while large companies are entitled to 1% of tax due. Also, the Act provides that small companies with an annual gross turnover/sales of less than ₦25,000,000 are exempted from VAT registration and remittance.

The Companies and Allied Matters Act (CAMA) 2020 categorizes businesses based on the annual gross turnover/sales and net assets.  A small company is a company with an annual gross turnover/sales and net assets of not more than ₦120,000,000 and ₦60,000,000 respectively and where the company has share capital, the director holds at least 51% of the share capital. A medium company is a company with a turnover/sales below ₦100,000,000. The company income tax due is at the rate of 20%. A large company is a company with an annual turnover/sales greater than ₦100,000,000 and the company income tax due is at the rate of 30%. According to CAMA 2020, small businesses are exempted from appointing auditors hence, are not required to prepare audited financial statements.

We hope we have been able to help you categorize your business appropriately. Please share with friends and families, drop your comments in the comment box, and engage with us via our social media platforms @ broadstreetfinancialreview on Facebook, Instagram and LinkedIn; @ broadstreet_fin on Twitter.

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REFERNCES

Finance act 2020 has been signed into law. – firs. (n.d.). Retrieved February 1, 2022, from https://www.firs.gov.ng/finance-act-2020/

Yakoob, A. (2021, February 17). Finance act 2020 and its impact on small and medium scale enterprises – corporate/commercial law – nigeria. Welcome to Mondaq. Retrieved February 1, 2022, from https://www.mondaq.com/nigeria/corporate-and-company-law/1037562/finance-act-2020-and-its-impact-on-small-and-medium-scale-enterprises

Federal Republic of Nigeria Official Gazette. (n.d.). Retrieved February 1, 2022, from https://www.cac.gov.ng/wp-content/uploads/2020/12/CAMA-NOTE-BOOK-FULL-VERSION.pdf

Uwanaka, C. (2021, July 8). World MSME Day 2021: Enhanced financing for Nigerian small businesses. TheCable. Retrieved January 31, 2022, from https://www.thecable.ng/world-msme-day-2021-enhanced-financing-for-nigerian-small-businesses