Across Nigeria, particularly in the Niger Delta region, small businesses predominantly operate within the informal sector due to the perceived advantages of staying informal outweighing the costs of formalization. However, this sector faces significant challenges, including unreliable electricity supply, multiple taxes, and illegal levies. In the Niger Delta, where the Foundation for Partnership Initiatives in the Niger Delta (PIND) has been active for over 13 years, promoting peaceful socio-economic growth, these challenges persist.

Small businesses in the region contend with a complex array of taxes imposed by federal, state, and local governments, often facing up to 100 different taxes, fees, and levies. Many businesses even encounter multiple taxes for the same asset or event, levied by all three tiers of government. Despite the region’s oil wealth, sustainable economic growth remains elusive, and over half of the Niger Delta population continues to live in poverty.

While taxes are crucial for funding government initiatives and public services, small enterprises in the region face a negative impact on their ability to sustain and expand due to the heavy tax burden. According to the Small and Medium Enterprise Development Agency (SMEDAN), 85% of small businesses in Nigeria fail before their fifth anniversary. Tax-related issues, such as high rates, multiple levies, and complicated regulations, are key factors behind this failure. Many small businesses lack the proper education and awareness about tax laws, which further compounds the problem.

Typically, small and medium enterprises (SMEs) are treated the same as large corporations in government policies, ignoring their unique nature and vulnerability to illegal tax collection. The recent establishment of the Presidential Committee on Fiscal Policy & Tax Reforms in August 2023 reflects the government’s willingness to address issues of multiple taxation and illegal levies. To be effective, this committee must actively engage with small businesses, raising awareness and educating them on tax matters, while also improving policy frameworks and tax administration processes to foster the growth and sustainability of SMEs.

This could lead to fruitful collaboration between government agencies, small businesses, and stakeholders, ensuring a favorable business environment. Efficient management of partnerships with government agencies, civil society organizations, and development partners is essential to implementing and monitoring these reforms.

PIND, focusing on Revenue Transformation and Economic Growth Facilitation, has recommended specific measures to address these challenges. On revenue, the focus should be on transforming tax administration, creating a fair taxation structure, managing incentives, and mobilizing non-tax revenues. For economic growth, the government should promote ease of doing business, remove trade barriers, and support MSMEs. Reforms in these areas will likely result in job creation and economic growth, benefiting small businesses, which serve as the backbone of the economy.

PIND has proposed several recommendations based on over a decade of implementing projects in the Niger Delta region. The Nigerian government should eliminate mobile levies, abolish fees on mobile factors, and remove roadblocks that hinder efficient cross-state supply chains, thereby boosting competition. Improving the transparency of the tax system is crucial to reducing corruption, preventing harassment by tax officials, and increasing compliance by businesses. Additionally, the government should review business categorization to clarify appropriate tax bands for different levels of small businesses. There is also a need for the government to compile an operational business register at local government levels for more accurate GDP data and better tax estimates.

Digitizing and harmonizing tax administration processes at the state level should be prioritized to ensure accountability, efficiency, and fairness in tax collection. Furthermore, the three tiers of government must reduce the overhead cost of tax administration, as they currently over-exploit the existing tax base.

PIND believes that starting with these recommendations and implementing them effectively will pave the way for improved fiscal and tax reforms in the country. The organization remains ready to contribute further to these discussions and welcomes future opportunities to be part of the public discourse on this critical issue.