Classification of businesses in Nigeria based on turnover

Before 2020, Nigerian businesses were classified by the Federal government based on their number of employees, assets base, and turnover. However, this has changed. Businesses in Nigeria are now classified based on turnover. In this article, we explained this in detail.

1. What is meant by business classification?

Business classification means the categorisation of businesses based on their sizes. It helps to separate small businesses from large ones. Therefore, the government and every individual can use it as a yardstick to measure each entity and know what is expected from it. 

In Nigeria, businesses were classified as small, medium, or large. With the recent classification, businesses in Nigeria are now categorized into Nano, Micro, Small, Medium, and Large entities. 

2. Why is it important to classify businesses?

Classification of businesses is important for the following reasons:

They serve as metrics to analysts. Organizations that provide data for public consumption need to know their basis for doing so. For example, last year Moniepoint, a fintech company in Nigeria, provides details regarding the number of small businesses in the country. Without the metrics regarding how to know if a business is small or large, this would have been a difficult task for them.

Use as a basis of taxation: In applying the principles of taxation, it is important to clearly state the class a business belongs. Taxation principles explain that taxes should be paid on a progressive basis. That is, taxpayers with more wealth should pay more taxes than others. Also, taxation allows the government to provide incentives to certain entities. Therefore, knowledge of the business classification will help achieve these principles.

3. Turnover base clarification of Nigeria business

Recently and as posted by The Guardian newspaper businesses in Nigeria are classified as nano, micro, small, medium, and small businesses.

A Nano business: To be classified as a Nano enterprise, the entity must have a turnover of less than 3 million Naira and, at most, two employees.

Microenterprise: For micro business, the turnover base must be above 3 million but less than 25 million Naira. And its employees should be between 3 and 25 staff.

Small business: This is put at 25 million Naira as their turnover base. It is expected that the staff strength must be between 10 and 40 employees.

Medium-size business: A medium-sized business should have a turnover level of 25 million and 100 million Naira. Its staff number is expected to be 50 to 199 employees.

Large enterprise: Finally, a large enterprise's turnover must be above 100 million Naira and its employee base should be above 200 staff.