Sustaining the corporate income tax rates of small businesses in developing economies : lessons for Nigeria from Canada, South Africa, and the UK


University of British Columbia

Date Issued


Document Type



Master of Laws - LLM




The Nigerian government recently introduced zero and low corporate income tax (“low CIT”) rates for small and medium companies to, amongst other reasons, foster the growth of small businesses in the country. Nigeria is not the first country to introduce such CIT incentives for small businesses. Similar incentives exist in Canada and South Africa and previously in the United Kingdom (“UK”). Policymakers are quick to argue that low CIT rates encourage the growth of small businesses, however, evidence shows that the implications of such CIT rates often defeat their purpose and may have unintended consequences on the tax system, especially resulting in tax arbitrage behaviours and inappropriate tax avoidance arrangements. Notably, this happened in the UK, when a low CIT rate was introduced in 1999 for small companies. The low CIT rate triggered tax-motivated incorporations to, amongst others, shelter personal income and avoid higher personal income tax rates. The UK government considered this as unacceptable and eventually eliminated the low CIT rates in 2006. In other countries, like Canada and South Africa, where these low CIT rates exist, tax anti-avoidance rules are therefore introduced and improved to curb inappropriate tax avoidance arrangements. Many of these rules do not currently exist in Nigeria. Studies have also shown that, in addition to making the tax system complex and complicated, these tax anti-avoidance rules do not end up curbing all forms of tax avoidance schemes and countries still suffer significant loss of vital tax revenue. Experts therefore suggests having neutral tax system with no targeted low CIT rates. In adopting both the doctrinal methodology and comparative law approach of legal research, this study analyzed the experiences in the UK, Canada, and South Africa, and shows that it is not a good idea to provide low CIT rates for small businesses in Nigeria, given its serious implications. In recommending the options of either withdrawing the low CIT rates or retaining same but introducing new tax anti-avoidance rules, this study shows that irrespective of whatever option the Nigerian government chooses, the current Nigerian CIT system is not ideal and needs to be amended.

Date Available



Attribution-NonCommercial-NoDerivatives 4.0 International




Law, Peter A. Allard School of