6 Tax Incentives Nigerian SMEs Often Ignore and How to Benefit from Them

Running a business in Nigeria comes with its fair share of challenges has become a norm amid rising inflation. However, amid these struggles, there are also government-backed opportunities that smart business owners can tap into. One of the most overlooked opportunities is tax incentives.

Yes, Nigeria’s tax system can seem complicated, especially when dealing with both the Federal Inland Revenue Service (FIRS) and State Internal Revenue Services like LIRS. But with the right knowledge and guidance, your business can benefit from legally structured tax reliefs that improve cash flow and profitability.

In my over 15 years as a Chartered Accountant and business advisor to companies across various industries, I have seen many SMEs lose money, not because they didn’t make profits, but because they didn’t know where savings could be made through proper tax planning.

In this post, we will take you through 6 tax incentives that many Nigerian SMEs overlook and, more importantly, how your business can benefit from them.

1. Small Company Income Tax Exemption

What is it?

According to the Finance Act 2019 and later amendments, any business with an annual turnover of ₦25 million or less qualifies as a small company. These businesses are exempt from Companies Income Tax (CIT).

Why is it ignored?

Many small business owners either don’t know about this or think that exemption from tax also means exemption from filing. That’s incorrect.

How to benefit:

• Ensure your company is properly registered with the Corporate Affairs Commission (CAC).

• File your annual CIT returns with FIRS, even if your tax payable is zero.

• Maintain clear financial records to justify your turnover threshold.

This exemption allows new and growing businesses to retain more funds for reinvestment, especially in the early stages.

2. Pioneer Status Incentive (PSI)

What is it?

The Pioneer Status Incentive offers up to 5 years of CIT holiday to companies operating in qualifying industries. The Nigerian Investment Promotion Commission (NIPC) oversees this scheme. Eligible sectors include agriculture, ICT, manufacturing, solid minerals, and more.

Why is it ignored?

There is a misconception that this is only for large corporations. Many SMEs don’t even know their industry is on the approved list. Others shy away from applying due to the paperwork involved.

How to benefit:

• Check the current list of qualifying industries on the NIPC website.

• Submit your application with business plans, audited accounts, tax clearance certificates, and CAC documents.

• Once approved, your business will enjoy CIT relief for up to five years.

If your SME is eligible, this incentive can save your business a substantial amount while you reinvest in growth.

How to Structure Your Startup for Tax Efficiency in Nigeria

3. Capital Allowances on Business Assets

What is it?

When your business buys qualifying assets like machinery, furniture, vehicles, or equipment, you are entitled to claim capital allowance on those assets. This allowance reduces your tax liability.

Why is it ignored?

Many small businesses either do not keep proper asset registers or mistake accounting depreciation for tax-deductible capital allowance. These are not the same.

How to benefit:

• Keep a detailed asset register including date of purchase and cost.

• Ensure your accountant or tax consultant applies for both the initial allowance and the annual allowance when computing CIT.

• Only claim on assets used for business purposes.

This incentive allows SMEs to claim back a portion of their capital expenses over time, reducing taxable profits.

4. Export Expansion Grant (EEG)

What is it?

The Export Expansion Grant is aimed at encouraging non-oil exports. Approved exporters receive tax credit certificates that can be used to settle tax liabilities or even sold.

Why is it ignored?

SMEs think it is too complicated or assume it is only for multinationals. Many are not registered with the Nigerian Export Promotion Council (NEPC) and miss out.

How to benefit:

• Register your company with NEPC.

• Export only non-oil goods, and repatriate proceeds via authorised channels through the CBN.

• Apply for EEG after meeting documentation and export volume requirements.

This is especially useful for SMEs in agro-processing, manufacturing, or textiles looking to enter foreign markets.

5. VAT Exemptions on Basic Goods and Services

What is it?

The VAT Act (as amended by the Finance Acts) exempts certain goods and services from VAT. Examples include basic food items, educational materials, baby products, and healthcare services.

Why is it ignored?

Many businesses don’t take time to review the full VAT exemption list. Others collect VAT on exempt items and remit it incorrectly, making their prices higher and risking penalties.

How to benefit:

• Familiarise yourself with the current VAT exemption schedule.

• Avoid charging VAT on exempt items or services, and make this clear on invoices.

• Keep separate accounting for taxable and exempt goods if your business sells both.

Understanding this incentive helps businesses stay compliant and price products competitively.

6. Tax-Deductible Staff Pension and Group Life Insurance Contributions

What is it?

Under the Pension Reform Act and Personal Income Tax Act, employers must provide pensions and life insurance for their employees. These contributions are tax-deductible for the employer.

Why is it ignored?

SMEs often see this as an expense and not a tax-saving opportunity. Some are unaware that group life insurance is compulsory for employers with more than three staff.

How to benefit:

• Enrol all full-time employees in a pension scheme with a licensed PFA.

• Take out a group life insurance policy for your team.

• Claim the total contribution amount (pension + life insurance) as deductible during CIT computation.

This not only helps with staff retention and morale but also reduces the company’s tax burden.

Final Thoughts

There are real opportunities in Nigeria’s tax landscape,  but only for those who understand it. Many small business owners miss out on these incentives either due to a lack of awareness or because their tax filings are not structured to take advantage of them.

At FSC Professional Services, we help SMEs across industries structure their businesses for tax efficiency, compliance, and sustainability. We don’t just crunch numbers; we provide strategic tax planning that saves your business time and money.

Ready to Stop Overpaying Taxes?

Let’s help you unlock the full value of your tax incentives and keep more of what you earn.

📞 Call or email FSC Professionals today to get started.