1. Introduction
1.1​According to the recent Gross Domestic Product (GDP) Report by the National Bureau of Statistics, the Information and Communications Technology (ICT) sector contributed 18.44% to Nigeria’s GDP in the second quarter of 2022.In the same vein, the Nigerian Startup Ecosystem Report 2022, highlighted Nigeria as one of Africa’s “Big Four” startup ecosystems alongside Egypt, Kenya, and South Africa. Between 2015 and 2022, about 383 tech startups raised a combined $2,068,709,445 capital in Nigeria, a higher total than any other country. Also, as of August 2022, 107 Nigerian startups have raised funding accounting for around one-third of the continent’s funded startups so far this year. These are few of the great achievements that have been witnessed in this sector. It is therefore disheartening that despite this tremendous contribution by the Fintech industry, several promising tech startups in Nigeria with the potential to immensely drive profit to the Nation’s economy stopped operation, due to the Government’s inconsistent approach to policies that relate to tech support. It is with a view to mitigate the challenges faced by tech and other startups and provide an enabling environment for the establishment, development and operation of startups in Nigeria that the Federal Government enacted the Nigeria Startup Act 2022 (“the Act” or “the Startup Act”). The Act specifically provides for certain tax reliefs and incentives for labelled startups, investors investing in labelled startups, employees of labelled startups and external service providers of labelled startups.
1.2 As beautiful and attractive as these tax incentives and reliefs may be, many have called for the need for the Government to ensure diligence when it comes to implementation of the legislation. More so, the Nation is currently bedeviled with series of economic challenges, to which experts have suggested strong fiscal and monetary policies as the viable mechanisms.

1.3​This article therefore seeks to examine the impact as well as the extent to which those reliefs and incentives are practicable, given the country’s recent economic realities.

2. Tax Reliefs and Incentives granted under the Nigeria Startup Act 2022
2.1​According to the International Monetary Fund (IMF), tax incentives are any special tax provisions that are granted to qualified investment projects or firms that provide a favourable deviation from the general tax code. The highlights of Nigeria’s favorable tax policies are the tax holiday and tax allowance incentives for investors. The Startup Act provides for several incentives and reliefs available to labelled Startup companies in Nigeria. They include:
1. Incentives for Labelled Startups under the Pioneer Status Incentive Scheme: Here, a Labelled Startup which falls under the Pioneer Status Incentives Scheme may upon application to the Secretariat of the National Council for Digital Innovation and Entrepreneurship (which is the National Information Technology Development Agency-NITDA) receive expeditious approval from the Nigerian Investment Promotion Commission (NIPC) for the grant of tax reliefs and incentives. Some of such incentives include the exemption of dividends paid by the Labelled Startup from withholding tax, deferral of the claim of capital allowances on assets until after the pioneer status period has elapsed.
2. A Labelled Startup, when granted the pioneer status incentive, may be entitled to the exemption from companies’ income tax as provided under the provisions of the Industrial Development (Income Tax Relief) Act for a period of 3 (three) years and an additional 2 (two) years.
3. A labelled startup shall enjoy full deduction of any expenses on research and development which are wholly incurred in Nigeria and the restrictions placed by the Companies Income Tax Act shall not apply to a labelled startup.
4. Non-resident companies that provide technical, consulting, professional or management services to a Labelled Startup shall be subjected to a reduced withholding tax rate of 5% as opposed to the applicable rate of 10%, which shall be the final tax to be paid by such non-resident companies.
5. A Labelled Startup shall be exempted from contributing 1% of its annual payroll cost to the Industrial Training Fund as required under the Industrial Training Fund Act (as amended) where it provides in-house training to its employees for the period where it is designated as a Labelled Startup.
6. Labelled Startups engaged in the exportation of products and services that are eligible under the Export (Incentives and Miscellaneous Provisions) Act are entitled to receive export incentives and financial assistance from the Export Development Fund, Export Expansion Grant, and the Export Adjustment Scheme Fund.
7. A startup with a minimum of ten employees, 60 percent of which are employees without any form of work experience, and within three years of graduating from school or any vocation within the assessment period, is eligible to enjoy tax relief from income tax of 5 percent of its assessable profits.
8. Investors who invest in labelled startup are entitled to an investment tax credit equivalent to 30 percent of their investment in a startup.

3. The Impact of the Tax Reliefs and Incentives on Startup
3.1​Amidst the huge opportunity for growth, high returns on investment and positive socio-economic trends, one can scarcely forget the high cost associated with running businesses in Nigeria. The infrastructural facilities are inadequate for businesses to fully rely upon. In fact, business protection is abysmal, and the regulatory framework is uncertain. Coupled with several bans and regulation of social media services, especially through the Central Bank of Nigeria (CBN) which have been criticized for over-regulation of fintech solutions. In the World Bank’s Ease of Doing Business Report of 2019, Nigeria ranked 131st of 189 countries globally. This is not encouraging considering that Kenya ranked 56th over the same period. It is therefore expected that the introduction of these tax incentives and reliefs granted to Labelled startup will improve the cost of doing business in Nigeria by Startups since there will be reductions in their tax liabilities which will in turn increase their profits. Besides, it will positively impact in Nigeria’s ranking on the ease of doing business in the country.
3.2​As a matter of fact, It is the belief that the provisions of these reliefs and incentives will deepen the country’s technology ecosystem and usher in a new era of innovation-friendly regulation in the country that informed the welcome of the pro-start up legislation with a lot of pomp and pageantry.
3.3​One must not forget that a major issue faced by startups in Nigeria is the issue of funding. Majority of these companies struggle with raising funds, either to start operations or scale up their activities. Hence, a clear implementation of the Act, through tax and fiscal incentives for investors and even accelerators, would yield room for more attraction of funds from both local and international investors, which would positively impact the economy.
3.4​In addition, labelled startups are encouraged to employ a particular percentage of employees with no experience. This will help develop new talents in the tech space since employees with no form of experience will be taken in and groomed by the tech companies. The effect of this action will be reduced rate of unemployment amongst fresh graduates and more opportunities to gain working experience in the long run.
3.5​There is no-gainsaying that should these reliefs and incentives be fully implemented it would afford startups a tax moratorium within which they can build capacity in financial terms, gain experience and expand business.
4. Practicability of these Reliefs and Incentives vis-à-vis the present Economic Realities
4.1​As a country that is desperate for funding development, with one of the lowest Human Development Index rankings in the world, and one of the lowest tax-to-GDP ratios, one wonders how the promises in the Act will be fulfilled.
4.2​Indeed, it is doubtful whether the cost and likely effectiveness of the tax and fiscal incentives contained in the Act were duly evaluated before the enactment of the Startup Act. This becomes more critical given the revenue challenge that the country is currently facing as the Federal Government estimates its collectable revenue at N16.87 trillion in 2023 with a total expenditure of N20.51 trillion. Also, the total fiscal operations of the Federal Government are expected to result in a deficit of N10.78 trillion which the Government intends to finance by new borrowings adding to the public debt of #42.84 trillion.
4.3 Currently faced with all these multiple challenges: spiraling inflation, stuttering education system, rising debt, all of which have threatened to lay the country bare, the nation’s economic growth forecast even signals worsening misery index and experts have warned of impending hard times. Furthermore, when government cuts taxes or exempts certain persons or corporate bodies from tax, it contracts its own source of revenue. All these and many more sum up the reason for the reservations as to the practicability of those incentives.

4.4​On the part of the Government, granting these tax incentives is similarly a sort of sacrifice of her revenue towards assisting Labelled startup. However, with the recent realities of the economy, the financial difficulties faced by the State may not grant an opportunity for such concessions to be made.
4.5​With various financial analysts calling on the Government to in the short-term widen the tax net, one can only hope that the Government does not see the grant of the incentives to start-ups as an act that will translate to over-burdening already burdened businesses and then delay the implementation of the Act. This becomes more glaring in the light of the change of Government through periodic elections, with each Government attempting to outdo the previous regime in expanding the tax-net.
4.6 Hence, it is important that the Federal Government be intentional and deliberate about following through with creating an enabling environment necessary to attract the much-needed investment; not just for the startup companies but also for the development of the necessary infrastructure required for businesses to grow and thrive.

4.7 On a positive note, the incentives and reliefs if successfully implemented will boost the Nigerian economy and in turn increase our revenue. The incentive granted will reduce the tax being paid by the Labeled startups but will ensure continuity of payment because when the tax rates are low, businesses can thrive and increase their services which in turn affects their profit margin. Hence, despite the search for increase revenue by the Government, granting the concessions will pay off in the long run. However,
4.8​it is advised that successive government should implement the reliefs and incentives in the Startup Act to prevent the Act from being another futile effort at revamping a dilapidating economy.

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1. Marvis Oduogu, Esq.
Team Lead, Tax, Construction and Industrial Relations
2. Adenike Oguntoye, Esq
Associate, Tax, Regulatory and Industrial Relations