The Central Bank of Nigeria recently announced a new cash withdrawal policy that restricts cash withdrawals from over-the-counter, Automated Teller Machines (ATMs) to N100, 000 and N500, 000 per week for individuals and corporate organizations, respectively.
In the circular which was signed by the Director, Banking Supervision Department of CBN, Mr. Haruna Mustafa, the Apex bank added that daily withdrawal from ATMs will now be N20,000 subject to N100,000 per week; and as such only N200 and lower denominations would be loaded into ATMs.
See screenshots of the Circular below.
What does this mean for Micro, Small and Medium Scale Businesses?
In light of the many questions trailing the new policy, Fiscal Policy Partner and Africa Tax Leader at PwC, Taiwo Oyedele, shared a Tweet thread on what to expect.
MSMEs will now come under the Tax Radar
With the new cash withdrawal limit, a lot of clients and customers may have to make payments via electronic means, thus making all transactions visible to the relevant authorities. According to Oyedele, this will trigger various tax obligations like income tax.
“If your business is registered as a company you may be liable to CIT depending on your annual turnover (i.e. no CIT if your turnover is below N25m, 20% if your turnover is between N25 to N100m, …30%. if your turnover is more than N100m) in addition to Education Tax at 2.5%.” the tweet read.
Even those operating micro businesses that have not been properly registered as a business, will be liable to Personal Income Taxes based on graduated taxable income bands between 7% and 24%.
Note: (CIT = Company Income Tax)
MSMEs would have to implement the 7.5% VAT on their charges
As businesses are legally required to register for and charge 7.5% VAT on their goods and services, micro, small and medium scale business owners should get ready to implement this on their goods and services.
Only businesses with annual turnover below N25 million are exempt from this.
Business Owners will now have to remit PAYE on their staff
“All employees earning more than N30,000 per month are liable to PAYE which must be deducted and paid to the tax authority by the employer on a monthly basis. You may also be liable to other statutory contributions such as pension depending on your staff strength” Oyedele’s tweet read.
What can small business owners do now?
There are some things you can do before the law takes effect on the 9th of January 2023.
Register with the relevant tax authorities (FIRS and the State Internal Revenue Service where you operate).
It doesn’t matter if you operate your business out of your bedroom or only have a small kiosk. So long as you have a business, you should get it registered, give the business an identity of its own, and its own financial records. If you continue to use your personal bank account for business transactions, you may attract some outrageous personal income tax to yourself, or even get yourself into a fraud watchlist, when the transactions start running into millions that you cannot explain away as personal transactions.
Open a separate bank account for your business and begin to keep your financial records clean if you have not been doing so already.
Do not mix business funds with personal funds. Keep in mind that there are tax waivers and incentives you may enjoy if you do it right and do it on time.
Make sure you are registered with the tax authorities and have your Tax Identification Number. Also, do not wait for the authorities to come after you asking for your tax returns. Go ahead and file them when due.
It will generally become very difficult and almost impossible to evade taxes at all levels. With the bulk of transactions going through your business bank account, the tax authorities will be able to compute your revenue and tax your business accurately. Whatever transactions you divert to personal bank accounts will also be subject to Personal Income Tax (subject to the volume).