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States go after small businesses to boost Internally Generated Revenue

By Femi Adekoya
08 April 2017   |   4:29 am
With traditional sources of financing almost over stretched and increasing, pressure on basic infrastructure from a growing population, states are increasingly taxing existing businesses while struggling to attract foreign investments.

From hawkers on the streets to small and medium businesses operating in the informal sector, the fear of multiple regulation and taxation has kept most of them out of the formal sector as government at all levels has continually sought to bring them under its radar.

Statistics show that two-thirds of businesses operating in Nigeria and other developing economies are informal mainly because for almost any business, operating informally has its upsides. Hiding revenues or paying staff in cash are easy ways of cutting the tax bill. Avoiding regulations allows such businesses to appropriate more profit.

With traditional sources of financing almost over stretched and increasing, pressure on basic infrastructure from a growing population, states are increasingly taxing existing businesses while struggling to attract foreign investments.

Using activities of regulators and state revenue boards in the formal sector as a gauge, many businesses would rather operate informally than remain under governments’ surveillance.

Beyond the narrative and rhetoric by governments at all levels acknowledging the role of small businesses in revamping the economy, checks show that excessive regulation, taxation and lack of friendly environment for operations have left many small businesses to elude government’s offer of carrots to stay in business.

Latest report by PriceWaterCoopers (PwC) on promoting economic prosperity through an analysis of the business environment at the state level showed that discussions with the private sector indicate that investors are interested at the sub-national level, but the bottlenecks in the business environment remain a challenge.

“Based on our assessment, challenges to doing business are broadly similar across all states. However, the magnitude of the challenges varies and depends on policy initiatives in each state and the implementation there of, we have identified limited access to finance and inadequate infrastructure, especially power supply as major business constraints.

“In addition, we highlight the following constraints at the state level business environment as identified in the course of our study: Lack of clarity on registration procedures for new businesses, high cost of land acquisition and difficulty in obtaining land titles, sanctity of agreements and enforceability of contracts, inadequacy of intra state transport infrastructure (road and rail), low level of automation of business processes within the civil service, lack of clarity of investment protection laws, raw material shortages and weak Public Private Partnership (PPP) framework,” the report added.

Though large scale mechanised agriculture and agro-processing were the major investment opportunities in agriculture as cited in the pilot states for the study, major business constraints identified were poor organisation of farmers, inadequate processors, insufficient funding, limited agricultural research, poor infrastructure (power and roads from farm areas to markets) and limited market outlets for produce.

On his part, the SME Group Chairman of the Lagos Chamber of Commerce and Industry (LCCI), John Kachikwu chided government for its inability to live up to its expectations to businesses while expecting so much from operators.

Lamenting the difficulty in doing business in the country, he said: “Basically, the major challenges for businesses border on foreign exchange challenges, lack of infrastructure, multiple levies and high interest rates. We now have a situation where exporters cannot have access to their repatriated dollars, yet non-exporters can access theirs.

“People involved in the semi-processed industry have challenges repatriating their funds and that has affected volume of non-oil export and encouraged non-oil exporters to explore other means of doing businesses.

“Infrastructure, especially access to electricity remains a major challenge. Many of us pay taxes to use generators in our facilities as well as for access to potable water. Government officials across the various levels come to our offices to harass us for several levies. The challenges are multi-faceted and government is only paying lip service to its policies.

“The interest rates are equally not competitive for small businesses to operate in the country. There is no profitable business that can be done with 25% interest rate. Government needs to live up to its responsibilities,” he added.

However, the Executive Secretary of the Nigerian Association of Small & Medium Enterprises (NASME), Eke Ubiji, was of the opinion that things are already improving for operators in the formal sector following efforts by the Federal Government through the Presidential Enabling Business Environment Council (PEBEC) to remove critical bottlenecks and bureaucratic constraints in eight priority areas for doing business in Nigeria.

He said: “In the area of ease of doing business, we are aware that the office of the vice-president has started running a programme on SME clinic to create an interface with major stakeholders in the value-chain. For instance, the Corporate Affairs Commission (CAC) has reviewed its processes to make business registration easier, while the Federal Inland Revenue Service (FIRS) is working to address the issue of taxation.

“The FIRS had last year waived penalties on taxes for small businesses to encourage compliance and make things easier. There are still challenges in the area of access to finance. However, with the new Development Bank of Nigeria (DBN), we hope that with the commencement of the bank’s operations, access to finance will be addressed”.

For operators in the informal sector, Ubiji noted that the ease of doing business is still far from easy. According to him, there should be a single window for revenue collection rather than multiplying the agencies in various states to drive revenue.

“Power is equally a challenge that should be addressed to ease the cost of operations and production”, he added. A Senior Lecturer on Entrepreneurship and Academic Director, Owner-Manager Programme, Lagos Business School, Dr. Henrietta Onwuegbuzie however advocated a paradigm shift in the way start-ups and small businesses evolve, adding that many businesses will thrive if they grow organically through the apprenticeship model being practiced by craftsmen.

Managing Director of Crown Natures Nigeria Plc., a textile outfit, Mrs. Omolara Aromolaran decried non-patronage of locally produced goods, especially by ministries, departments and agencies of government even when they meet international standards.

She said the inability to sell produced goods has led to operators incurring huge operating costs while the turnaround time has continued to expand. “If you are running on a loan, you would have defaulted already due to unsold goods. Loans are being used to repay loans. Development Finance Institutions (DFIs) are operating like commercial banks in terms of loan recovery. The business is in a bad shape as capital is low.

“Patronage policy needs to be implemented for industries to survive. Government parastatals don’t buy even from projects sponsored by them. Funding an industry is an issue but buying from the businesses that they have funded is also an issue,” she added.

Lack Of Govt Support, Extortion Are Major Problems, Says Onyishi, From Lawrence Njoku, Enugu
Proprietor of Peace Mass Transit Limited, Dr. Samuel Onyishi has said that lack of government support, especially in the area of policy was seriously hampering road transport business in the country.

He told The Guardian in Enugu on Thursday that a new policy regime whereby road transporters would pay a certain percentage to the federal government for cash deposits above N3 million was killing the transport business faster than envisaged.

Wondering how government wants them to continue to survive when they have continued to import their spare parts and pay through the scarce forex, Onyishi stated that government fiscal policies should put certain businesses into consideration.

“They should know that we deal with the less privileged in the society who carry cash and pay while on transit. Majority of our customers don’t know what you mean by online payment and what we charge is cannot be compared to what the airlines or shipping companies charge to convey people, goods and services to various destinations. Over 95% of the population who go by road, yet when we collect this money and go to the bank, we are charged three percent of every cash deposit. I do not think it is proper to include road transporters in such an exercise.

“We don’t get funds from the federal government like those in the aviation and shipping sectors. Government has always intervened by providing funds to them to cushion their hardship, but that is not the case with us. I think such gestures should also be extended to us because we are contributing to the growth and development of the country,” he said.

Onyishi is not alone in his dilemma, Mr. Chris Onwe, a dealer in ICT accessories on Ogui Road, said that multiple taxation has eaten deep into his business lamenting that various sums of money collected in the guise of taxes have compounded his challenges.

For instance, he said that local council officials charged them registration, business permit, signage fees and other according to the size of your business. On the other hand, there is Enugu State Waste Management Agency (ESWAMA) yearly fees, waste basket fees as well as the ESWAMA bags for refuse collection and disposal while a new form of taxation was recently introduced by Fire Service for small businesses.

“What I can tell you is that each business has its own form of taxes and levies and those who collect them include local government, Ministry of Commerce, ESWAMA, Board of Internal Revenue and levies of unions,” he said.

Another tricycle operator, Mr. Ogbonna Edward noted that they pay N200 daily as passage fees to the unions adding that such fees empowers them to operate in certain areas. He stressed that if they move from one local council to another, they are made to pay extra levies.

According to him, “This is different from what they charge us when we enter the parks to drop or pick passengers and goods. So, these are forms of taxation which we face in our own area. It is different from operational licences which the Ministry of Transportation or the Revenue Board will give you when your documents expire. Then there is police extortion which has become a common thing in Enugu. The Police have tactically left their job to now extort tricycle operators. They collect N50 or N100 depending on the load you ply and they do so with impunity”.

Yet, Mrs. Joy Nwosu, who runs a provision store at Edinburgh Street said that electricity supply and low patronage due to high cost of goods and services were her greatest challenges.

“Electricity improved some few months ago, but now, I can hardly light up this place without generator. There is no day we don’t buy diesel or fuel depending on the generator we want to use. People must always ask for cold drinks and when there is no electricity to power the refrigerator, you cannot sell them. So we are made to pay extra for these services in order to keep this place running”, she said.

For Tom, a Vulcanizer on College Road, “We have increased the cost of our services and this was done because of the cost of things in the market”. He stated that some of the materials they use to repair tyres and pump for people were no longer available, adding that because of regular power outages, “we now resort to working with generators.”

‘Taxation Has Made Operating Tricycle In Lagos Unprofitable’, By Shakirah Adunola
A tricycle operator at Ikotun, a suburb of Lagos, Muhammad Salisu said that multiple taxation has made their business unprofitable. He narrated his harrowing experience in the course of doing the business on a daily basis.

“I resume work as early as 5am everyday in order to meet up with my daily target. Before I will be allowed to load at the garage, I have to pay N1100 and also pay security levy of N400 naira monthly. After paying that, I will pay N50 to motor park boys (Agbero) everyday. About five of them collect the money from us daily. The total money we pay daily is N1500.

“For each trip, we carry four passengers that pay N50 naira each, which amounts to N200. To meet up with union fee of N1400 to N1500, it means you have to run seven trips. I have to also deliver N2500 or N3000 to the owner everyday.

“At the end of the day, if I add the Union money and my delivery fee, it comes to N4500 and I will also buy fuel. I will end up going home with nothing. That is highly frustrating.

The ticket which the Union sells to us has N100 written on it by the council area. But the union members collect N1100 from us. So tell me how I can make both ends meet or move forward? It is obvious we are labouring in vain. I don’t think I can survive the business. I am owing the owner the delivery money.

A trader in Isolo, Mr. Obinna Chukwuma is of the view that small-scale businesses would continue to fail if government refuses to do something about over taxation. “The prices of goods are relatively high which is causing low patronage of items. I own a shop before but due to increment in shop rent, I decided to quit the shop and end up selling by the roadside at night. Despite selling by the roadside, we are being taxed seriously on daily basis. It would have even been better if it was monthly or yearly payment.

“Before you can display your wares, you have to pay N10, 000 that varies, depend on how you negotiate. Then on daily basis you will pay daily dues of N250 to N500 to the Union, despite the fact that we only sell in the evenings.”

‘Poor Power Supply Is A Major Challenge’, From Alemma-Ozioruva Aliu, Benin City
Operators of small businesses in Benin City, Edo State capital are complaining of operating under harsh environment, which they said may force them out of business if urgent steps are not taken to remedy the situation.

Speaking, a food seller at Oba market, Nwanwene John said: “Recession has affected our sales because the way we normally sell, we are not selling again like that due to high cost of products. The government should reduce the prices of the products, most especially the food items. Let it be easy for a common man to buy a bag of rice. Besides, we are paying too many taxes and levies. The taxes, we normally pay include paying to Oredo council area, ministry of commerce and others. Before, we use to buy a bag of rice for N24,000 but it is now 17,000, but it is the same profit we get from that previous amount that we are getting now. We are not making profit again.’

He appealed to government to lift the ban on rice importation, stressing that many in the market today were smuggled in.
 “As citizens, we supposed to be getting reaping the benefits of the tax we are paying, but nothing like that. We don’t have good roads in the market. We want the government to come and repair the roads for us.”

A fish seller, Mrs Loveth Osewingie said: “Things are too expensive and it is affecting us. Customers want to buy because if they don’t buy we cannot sell but there is no money. If people who buy from us don’t sell, how can we sell to them? Imagine buying 200 Naira worth of food and it cannot quench your hunger? That is what I see. 
Without light I cannot sell this fish, even where I live, we hardly have light.

“In the market here, there is no light and it is affecting us. How can preserve the fish when there is no light? It will cost me more to rely on ice blocs to preserve it before selling. They will bring the light at midnight before you know it, it is gone”

On taxation, she said: “Since, the government of Obaseki came, we have not paid any tax. Nobody has come to disturb us over tax and we are happy about it. Inside the market, we have not witnessed any disturbances, though I don’t know about outside. I want the government to help us. Things are expensive. I want everything to come down. So, that we will see money to buy other things we need at home. I love education because even though I am not educated. I want my children to be educated and that is the reason I am in the market to raise money to train them so that they can compete with their peers.”

It was the same story for a retired civil servant Deaconess (Mrs) Grace Onyepunuka who said: “Public power supply is a no-go-area. There is no improvement at all. We prefer when it was NEPA. It is so bad that we cannot use it to pump water or preserve cooked food in the fridge.”

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