Tax Incentives for Small and Medium Enterprises and Their Effect on Business Growth in Nigeria

This study examines the effect of tax incentives on the growth of small and medium enterprises in Nigeria. The Nigerian government has introduced various tax relief measures for SMEs, including reduced company income tax rates for small companies, pioneer status exemptions, and investment allowances under the Capital Allowances Act. However, the extent to which these incentives actually stimulate SME growth remains debated, particularly given low awareness levels and complex eligibility criteria. This study adopts a survey design and collects data from 130 SME operators in Lagos, Kano, and Port Harcourt who are registered with the Corporate Affairs Commission and the relevant tax authority. The study assesses awareness of available tax incentives, uptake rates, and reported impact on investment, employment, and revenue growth. Regression and descriptive analysis are applied. Results indicate that awareness of SME-specific tax incentives is low, with only 38 percent of respondents correctly identifying the reduced tax rate applicable to their company size category. Among those aware and utilizing incentives, a significant positive relationship between incentive uptake and business investment growth was observed. The study concludes that tax incentives have meaningful potential to stimulate SME growth, but their impact is constrained by awareness gaps and administrative barriers. It recommends that FIRS establish a dedicated SME tax helpdesk and simplify the eligibility verification process to improve uptake of available incentive provisions.

Keywords: tax incentives, SME growth, company income tax, pioneer status, FIRS.