TAX INCENTIVES AND THE GROWTH OF SMALL AND MEDIUM ENTERPRISES (SMES) IN NIGERIA

Small and Medium Enterprises (SMEs) constitute the backbone of Nigeria's economy, contributing approximately 48% to national GDP and accounting for over 84% of total employment (Small and Medium Enterprises Development Agency of Nigeria [SMEDAN], 2023). Despite their strategic importance, these enterprises face significant survival challenges, with over 80% failing within their first five years of operation (Ogunleye, Adebayo, & Olaniyan, 2022). Among the most cited constraints is the burden of multiple taxation and complex compliance requirements (Adeniyi & Okonkwo, 2024). This study examined the relationship between tax incentives and the growth of SMEs in Nigeria, with three specific objectives: (i) to assess the effect of pioneer status incentives on the profitability of manufacturing SMEs in Nigeria; (ii) to evaluate the impact of accelerated capital allowances on fixed asset acquisition among SMEs; and (iii) to determine the moderating role of tax compliance costs on the relationship between tax incentives and SME growth. The study was anchored on three theoretical frameworks: the Tax Incentive Theory (TIT), the Compliance Cost Theory (CCT), and the Resource-Based View (RBV) of the firm. A mixed-methods research design was employed, combining survey data from 384 registered SMEs across Lagos, Ogun, and Gombe States with key informant interviews. Findings revealed that pioneer status incentives have a positive but uneven effect on SME profitability (? = 0.342, p < 0.05), with manufacturing SMEs benefiting more significantly than service-based enterprises (Adebayo, 2025). Accelerated capital allowances demonstrated a moderate positive effect on fixed asset acquisition (? = 0.287, p < 0.05), though uptake remained low due to awareness deficits (FIRS, 2025). Crucially, compliance costs were found to significantly moderate the incentive-growth relationship (? = -0.418, p < 0.01), suggesting that poorly designed incentives may paradoxically burden SMEs (Okeke & Mohammed, 2023). The study concluded that while tax incentives hold theoretical promise for SME growth, their practical effectiveness is contingent on simplified administration, targeted awareness campaigns, and the harmonization of federal and state tax policies (Nigeria Tax Act, 2025). The study recommended the implementation of a single consolidated SME tax regime, the establishment of one-stop compliance centers, and the introduction of automatic qualification mechanisms for eligible enterprises.
Keywords: Tax incentives, Small and Medium Enterprises, SME growth, Pioneer status, Capital allowances, Tax compliance, Nigeria