Business Post Contributor
By Otori Emmanuel
Nigeria launching the Startup Bill is the latest buzz that has brought excitement to many, including start-up founders, employees and graduates.
On October 19, 2022, President Muhammadu Buhari of Nigeria officially signed the Start-up Bill into law, creating the Start-up Act 2022. The Nigeria Startup Bill (NSB) project is a collaboration between the Nigerian tech sector and the Presidency to utilize jointly developed rules to realize the potential of its digital economy fully.
There is a relief in the industry due to this initiative to promote startups and rising digital businesses in Nigeria because there has been a need for a legal framework governing startup operations. The Startup Bill controls how startups operate and supports businesses with investments and tax benefits.
A startup is a business just starting and is frequently financed in its early stages by its intrepid founders. There has been a notable increase in the formation of startups during the past several years, particularly in Nigeria.
Many operate in tech-related industries, including edtech, finance, insurtech, logistics, agriculture, and health. As of September 2022, over 481 startups were operating in Nigeria, and 383 raised more than $2 billion in just seven years.
The Startup Bill Roadmap
Starting May 2021, the Startup Bill had been in process for over 17 months, with its first draft published in June 2021. Decision makers of the presidency and the ecosystem reviewed the draft designing its components in July 2021.
From August through September 2021, meetings for deliberations and validations were held until the final draft was released. In the latter part of 2021 to mid-2022, the Bill was submitted to the National Assembly, where it was read and passed into law and then signed in October 2022.
NSB influencing Digital Businesses
It is anticipated that Nigeria Startup Bill (NSB) will significantly improve the business environment for startups in Nigeria, fostering their success. The bill makes provisions for tax and fiscal incentives, training and capacity building, startup labelling, accelerators and incubators, regulation support, etc. This note focuses on the Act’s degree of impact by implementation on digital businesses, as explained below.
Business licensing and certification
With its enticing incentives for participating in the startup ecosystem, the Nigerian Startup Bill (NSB) appears promising. As a result, many digital businesses would need to certify to benefit from the bill.
To be eligible under the Act, the business must be a labelled startup operating for no more than 10 years and registered as a Limited Liability Company under the Companies and Allied Matters Act 2020.
Only a few businesses that have propelled the growth of startups in Nigeria are older than 10 years as a Limited Liability Company under the provisions of the bill. Viably, this appears to be unfavourable to emerging and recent digital businesses (less than 10 years old).
Employee Cap
According to the bill, a labelled startup must employ at least 10 workers. A startup is a company in its infancy, sometimes referred to as the difficult years before stability. As the nation’s economy has rapidly declined, fewer digital businesses have had up to 10 long-term employees over the years because so many people are employed seasonally or under contract due to their lack of expertise or cheap pay.
Incompetence and Output
Tax relief for new businesses sounds relieved and like a long-overdue chance to use those fractions to support business growth. Many people would like to avoid paying taxes if they could. It is encouraging to see NBS introduce tax breaks, deductions or exclusions that lessen a business tax burden. Except that because of this clause, the labelled startup employee cap should be made up of 60% of people who graduated within the previous three years and have no prior work experience.
The expansion of digital businesses will be hampered by this, which appears to be battling unemployment at first glance. Evidently, production suffers when there are too many unqualified workers around – this is unhealthy for startups. Since tax relief is only available for a maximum of five years, startups prefer to hire skilled workers and pay taxes while being productive rather than sacrifice their growth.
Conclusion
The objective of the presidency and NSB to promote a well-organized startup ecosystem and labelling process in Nigeria is commendable, but unrealistic parts of the law should be evaluated and changed accordingly for a more supportive environment. If otherwise, startups might be dissuaded from operating in Nigeria, leaving the sector to only optimism that it will adjust naturally in the future.
