Lagos state’s 2025 tax reforms set to boost SMEs, drive growth

The Lagos State Employment Trust Fund (LSETF) has forecasted 2025 as a pivotal year for Micro, Small, and Medium Enterprises (MSMEs), with significant tax cuts and export incentives at the heart of government reforms aimed at transforming the sector. These changes, along with key policy updates, are poised to help MSMEs overcome the challenges they faced in 2024.

In its report, “Resilience and Opportunities: A Review of 2024 and Outlook for MSMEs in Nigeria in 2025”, LSETF highlighted the economic difficulties that plagued MSMEs in the previous year. The Central Bank of Nigeria’s aggressive interest rate hikes, which reached 27.5 per cent to curb inflation, significantly raised the cost of credit, further complicating financing for small businesses.

However, government interventions, including the Lagos State Employment Trust Fund and presidential grants, offered some support, enabling MSMEs to continue operations despite the tough financial climate. The upward revision of Nigeria’s minimum wage to N70,000 was another positive step, though it was tempered by rising food inflation, which limited its real-world impact.

Looking ahead, LSETF expressed optimism for 2025, driven by the government’s strategic tax reforms and export incentives. Key to this optimism is a series of proposed tax reforms designed to reduce the financial burdens on MSMEs and make the business environment more conducive to growth.

One of the most significant changes is the introduction of zero-rated VAT on exports, which will make Nigerian products more competitive internationally. Additionally, MSMEs with annual turnovers of N50 million or less will be exempt from a range of taxes, including VAT, withholding tax, and corporate income tax. “This initiative is expected to provide significant relief to the majority of MSMEs, allowing them to reinvest their savings into business growth and expansion.”

Corporate income tax is also set for a reduction, with a planned five-percentage-point decrease from 30 per cent to 25 per cent over the next two years, enhancing profitability for small businesses. The simplification of tax compliance, through the harmonisation of various levies into a single, reduced rate, will further ease the administrative burden on MSMEs.

Furthermore, the creation of a tax ombudsman as part of these reforms will ensure fair resolution of tax disputes and safeguard the interests of small businesses, positioning 2025 as a year of opportunity for Nigeria’s MSMEs.