By Hope Moses-Ashike, Business Day Online

Despite continued outcry for lack of funds for on-lending to the informal sector, microfinance banks still pay huge amount of money as tax.

For instance, Lift Above Poverty Organisation (LAPO) Microfinance Bank Limited paid N1.2 billion tax to government in 18 month period. Also, Unical Microfinance Bank Limited, Calabar, Cross River, pays tax to the tune of N7 million per annum to government.
This is just two out of over 800 microfinance banks operating in the country which also pay tax to government. If the huge amount of money spent on taxation by these micro institutions can be invested in these banks for sustainable micro financing, it can go a long way in reducing across the country.

Part of the objectives for establishing microfinance banks as stated in the policy framework by the Central Bank of Nigeria reads: “provision of diversified, affordable and dependable financial services to the economically active poor, which otherwise would have been excluded, in a timely and competitive manner, to enable them undertake and develop long-term, sustainable entrepreneurial activities.”

Operators now wonder how this objective be achieved when microfinance banks are paying huge amount on taxation.

In view of this, operators are pleading with the governments for tax rebate to enable them have enough fund to serve the low income people.

Godwin Ehigiamusoe, managing director of LAPO, urged the Federal Government to consider microfinance banks in terms of tax payment so as to reach a number of low income people.

He said: “Microfinance banks that are supposed to support poor people are subjected to the same tax regime of an oil and gas company. If you look at our financials, we paid a tax of N1.2 billion cash for 18 months to the Federal Government, because of what tax people call tax commencement or tax registration.

“Our appeal is that because of the peculiar nature of microfinance, and because of the peculiar nature of those who benefit from microfinance banks they should be given some consideration or rebate in terms of tax. This can translate to a bigger loan to reach a large number of people.”

Edim Obim, managing director/CEO of Unical Microfinance Bank, had advocated that government should grant microfinance banks tax relief in order to consolidate and provide financial services to people at the grassroots.

Reacting to the development, Olufemi Babajide, National Association of Microfinance Banks, Lagos (NAMLAG), chapter, confirmed that microfinance banks have not enjoyed tax holiday from the governments, adding that the sub-sector has approached government but nothing positive has come out of it.

“Microfinance banking is a new business. We should have tax holiday for at least 10 years so that we can establish well and serve the low income earners better,” said Babajide.
The government of Western Australia had recently granted payroll tax rebate to small businesses operating in that country.

Such small businesses with nationwide group payrolls of up to $1.5 million in the 2012/13 financial year would receive a full rebate of their WA payroll tax liabilities, with a maximum value of $41,250.
The rebate is part of the measures the Western Australian government has put in place to reduce the tax burden on small businesses, which were the backbone of the economy. This will help ensure that the country remains an attractive place to do business.
If this is replicated in Nigeria, particularly in the microfinance sub-sector, the same advantage or benefit will be achieved.