Home Business Implications of the Startup Bill for Digital Business in Nigeria

Implications of the Startup Bill for Digital Business in Nigeria

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The Nigeria Startup Bill is the latest piece of information that has excited many, including startup founders, employees and alumni. On October 19, 2022, President Muhammadu Buhari officially signed the Startups Bill into law, creating the Startups Act, 2022.

The draft Nigerian Startup Bill (NSB) is a collaboration between the Nigerian technology sector and the presidency to use jointly developed regulations to realize the full potential of the digital economy. As a result of this initiative to promote start-ups and the growth of digital business in Nigeria, the industry has seen some relief because there has been a need for a legislative framework to regulate the activities of start-ups. The Startup Bill is designed to monitor startups and support businesses through investment and tax incentives.

A startup is a business that is just getting started and is often funded in the early stages by its intrepid founders. The past few years have seen a marked increase in the number of startups, especially in Nigeria. Many work in tech-related industries, including edtech, finance, insurtech, logistics, agriculture, and healthcare. As of September 2022, there were over 481 startups operating in Nigeria, and 383 of them had raised over $2 billion in just seven years.

Startup Bill Roadmap

As of May 2021, the startup bill has been in the works for more than 17 months, with its first draft published in June 2021. Presidency leaders and the ecosystem reviewed the project, developing its components in July 2021. From August to September 2021, meetings were held to discuss and review the final draft. Between the second half of 2021 and mid-2022, the bill was presented to the National Assembly, where it was read and passed as law, and then signed into law in October 2022.

NSB is impacting digital business

NSB is expected to significantly improve the business environment for startups in Nigeria, facilitating their success. The bill provides for tax and fiscal incentives, training and capacity building, startup labeling, accelerators and incubators, regulatory support, etc. This note focuses on the extent of the Act’s impact on digital businesses, as explained below.

Business licensing and certification

With attractive incentives to participate in the startup ecosystem, NSB seems promising. As a result, a large number of digital businesses will have to become certified to benefit from the bill. To be eligible under the Act, a business must be a designated start-up that has been operating for not more than ten years and is registered as a limited company under the Companies and Allied Matters Act, 2020.

Only a few businesses that have fueled the growth of startups in Nigeria are more than ten years old as a limited company under the provisions of the bill. Obviously, this is bad for both new and recent (less than ten years old) digital campaigns.

Read also: Highlights of the Launch Act signed by Buhari

Employee cap

According to the bill, a labeled startup must have at least ten people. A startup is a company in its infancy, sometimes referred to as the difficult years before stability. As the country’s economy has rapidly declined, fewer digital businesses have had up to ten long-term employees for years, because so many people work seasonally or on a contract basis due to a lack of experience or low pay.

Incompetence and exit

The tax breaks for new businesses sound like a relief and seem like a long overdue chance to use those shares to support business growth. Many people would like to avoid paying taxes if they could. It is encouraging that the NBS introduces tax credits, which are deductions or exemptions from taxes that reduce the tax burden of businesses. Except that because of this clause, the stated number of employees of the startup must consist of 60% of people who have graduated within the last three years and have no previous work experience.

This will hinder the expansion of digital businesses that, at first glance, appear to be struggling with unemployment. Obviously, production suffers when there are too many unskilled workers around – it’s not healthy for startups. Given that tax credits are only available for a maximum of five years, startups would prefer to hire skilled workers and pay taxes while remaining productive rather than sacrifice their growth.

Conclusion

The aim of the presidency and the NSB to promote a well-organized startup ecosystem and labeling process in Nigeria is laudable, but the unrealistic parts of the law should be evaluated and amended accordingly for a more enabling environment. Otherwise, startups may be dissuaded from operating in Nigeria, leaving the sector with only optimism that it will adapt naturally in the future.

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