Taxes – the cost of civic duty
Every Nigerian deserves a better standard of living. Unfortunately, access to basic necessities of life such as housing, portable water, electricity, roads, and healthcare have become luxuries. The government continues to make efforts to provide these infrastructures, in recognition of its duty to Nigerians. Incidentally, the ability of the government to provide these basic amenities considered to be its duty is limited, due to paucity of funds, though issues of poor management of resources remain a major debate. With taxes being the major source of revenue for the government, businesses have come under the heat of different forms of taxes and levies. Broadly, every business that operates within Nigeria is a taxable persona, hence has a civic duty to pay all applicable taxes. Some argue that tax is a huge burden to small businesses and indeed it is often a major burden, not just in terms of the opportunity cost of the money paid as taxes which could have been reinvested in the business to grow and employ more youths, but also in terms of the entrepreneurial time and distraction it may take to remit taxes.
Never evade tax but better avoid it
Like a chicken and egg scenario, businesses want the government to invest in infrastructures that can ease the cost of doing business and support business growth, but the government wants businesses to pay taxes to empower them to provide the relevant amenities. Whilst both can come through simultaneously, it is important for businesses to plan and avoid excessive taxation, but never evade taxes. Suffice to say that there are legal and statutorily allowed means to avoid taxes, but it is statutorily criminal to evade tax. So, you need to check if you are duly exposing your business to an excessive tax burden. One such legal means to avoid tax is for your business to take a loan.
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How business loans help to reduce the tax burden
Business loans are subject to taxes. This is one positive side of taking a loan to finance your business’ growth. The interest that you pay on loans reduces your taxable profit and thus it partly shields your business from the potential tax burden. Unlike payment, this is what accountants call the “tax deductibility of interest”.
Away from the big grammar, interest paid on loans are removed from your taxable profit, thereby reducing the effective tax that your business would have to pay. This tax benefit that accrues from a business loan is one of the fundamental reasons why finance expert’s advice that every business should consider taking some loans to complement the equity capital. This is why even large corporations take loans to partly finance their operations even when they could have raised equity. They would rather pay some of their cash to shareholders as dividends while taking loans to finance either or both capital expenditure and working capital.
It is important to clarify that you do not have to borrow at a high cost because you want to enjoy more tax benefits from the loan, rather, borrow as much as your business requires to effectively run the operations and expand the business. Take full advantage of the tax benefits of loans, but do not borrow excessively, especially when it is not required. Also, let nairaCompare.ng be your guide in search of the right loan and the best terms. Don’t lose the savings on tax at a higher interest rate. Make the search for the lender with the best rate on nairaCompare.ng, as you take the step to avoid tax. Don’t evade but avoid taxes – the savings is not just legal but also good for you and your business!