That Tax Reliefs for Tech Startups
By Zeenat O. Sambo
TECHDIGEST – On 18th May 2022, the federal government announced the approval of tax reliefs for tech startups. The news gave a euphoric feeling to Eddy Emmanuel and many other young innovators and entrepreneurs craving the opportunity to develop their innovations.
The approval will enable the implementation of strategies to encourage and support the development and growth of more Innovation-Driven Enterprises (IDEs) in the country.
Emanuel who studied Animal Husbandry developed a platform for community engagement in pasturing, trading, and live breeding to eliminate open grazing which had led to conflicts between pastoralists and farmers. This has escalated into incessant attacks by so-called “unknown gunmen” causing mayhem in the communities.
Without a doubt, the introduction of these tax reliefs will allow him to conveniently introduce more Nigerians to adopt this improved and cost-effective digital system of pasturing without fear.
Bright Ubani and Uzor Chigozie Joshua, two pioneers who created a digital platform called Level Up, are pleased with the tax relief initiative. The goal of the platform is to promote a culture of free skills training among youths across the country. They started a community to community training but were stymied by taxes which frustrated their effort to contribute positively to their communities.
Similarly, Lade Omoremi, an aspiring waste recycling innovator, lamented that the taxes had discouraged her from nurturing her innovation into a profitable startup that will be of great benefit to her community.
Startups are organizations or projects at their early stage of operation which is created by an entrepreneur to find, develop, and validate a scalable business model. But startups in Nigeria are often overwhelmed by multiple taxes and levies when they venture to seek investors or begin operations.
As a key factor in the progress of developing countries, startups contribute to the standard of living of the local population by introducing new technologies and attracting foreign investment, as well as enabling local innovators to address local problems with their innovations.
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To cut down the margin of unemployment, it is pertinent to recall that the federal government’s effort to engage many Nigerians in small and medium-scale enterprises has been a major concern over the years.
With the approval of tax reliefs for startups, more innovators will be able to take advantage of the incentive to build and grow profitable tech companies that will create jobs.
For instance startups like Carbon, Jumia, Konga, and others have helped to create over direct 3000 jobs in the country. According to Jobberman 2020 Digital Sector Report, Nigeria’s digital economy has the potential to create an average of 1.3 million tech-enabled jobs across all sectors by 2025, and the tax relief package will make it easier for this prediction to come into reality.
Yet many people are unaware of the extent of the tax reliefs and incentives that are available because of the absence of an awareness campaign.
As such, SMEs need to note that there are tax exemptions for small businesses with an annual turnover of less than N25 million. Startups in their early stages should be aware that a lower company income tax rate of 20 percent is granted to companies whose yearly turnover is between N25 million to N100 million.
There are various incentives for investors and startups involved in venture projects. Eligible startups enjoy up to 30 percent capital allowances on equity investments made by Venture Capital firms along with a capital gains tax exemption of up to 100 percent upon disposal of an equity interest.
Furthermore, in a bid to encourage the growth of the startup ecosystem, the federal government mandated companies to do business with startups on projects involving the central government or any of its agencies to enable them to thrive locally and internationally.
Most struggling startups believe that this tax relief package will enable them to revive and re-strategize into a viable enterprise that can thrive and grow at will.
National Information Technology Development Agency (NITDA) needs to fashion out a comprehensive awareness creation programme to enlighten startups on the available tax reliefs and how to access such incentives with ease.
Therefore, agencies like the National Office for Technology Acquisition and Promotion (NOTAP), Nigerian Investment Promotion Commission (NIPC), and others should partner with NITDA for the efficient implementation of the tax reliefs.
Such a collective approach would spur more indigenous innovators and boost the growth of the startup ecosystems to sustain Nigeria’s thriving digital economy.
Zeenat O. Sambo
Wuye District, Abuja
