Nigeria’s Federal Government has approved a new withholding tax regulation aimed at addressing long-standing challenges in the tax system, which would be published in the official gazette in the coming days.
According to Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, the new regulation aims to provide a more efficient and equitable tax system.
Withholding tax (WHT) is an advance payment of income tax deducted at varying rates of 5-10% depending on the transaction.
Introduced in 1977, WHT aimed to provide regular revenue flow and curb tax evasion. However, over time, ambiguities and complications arose, burdening small and medium-sized enterprises (SMEs) and low-margin businesses.
The new regulation would address several challenges, including the excessive compliance burden on SMEs, strain on working capital of low-margin businesses, and ambiguities on compliance, eligible transactions, and remittance timing.
It would also tackle the issue of multiple taxes and high cost of doing business, challenges in obtaining refunds for excess withholding tax, and lack of exemption threshold, making compliance and enforcement uneconomical.
Key changes introduced in the new regulation include exemption of small businesses from withholding tax compliance, reduced rates for businesses with low margins, and exemptions for manufacturers and producers, such as farmers.
The regulation would also address the ease of obtaining credit and utilisation of tax deducted at source, reflects emerging issues, and adopts global best practices.
On June 3, Oyedele announced the exemption of small businesses earning N25 million and less from withholding tax, supporting SMEs and promoting economic growth.
The new regulation is expected to boost economic growth by reducing the burden on SMEs and low-margin businesses, promoting tax equity, and addressing emerging issues in the withholding tax regime.
Boluwatife Enome
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