EoDB: Nigerian Government approves new ‘business-friendly Withholding Tax’ regime for SMEs, farmers

*Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, discloses the Federal Government has approved major changes in the new Withholding Tax regime, including exemption of small businesses from Withholding Tax compliance, as well as manufacturers and producers, such as farmers, which are expected to be published in the Official Gazette within days

Gbenga Kayode | ConsumerConnect

The Federal Government has approved a new simplified and business-friendly Withholding Tax (WHT) regime for businesses and organisations in the Nigerian economy.

ConsumerConnect reports Mr. Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, who disclosed this development Tuesday, July 2, 2024, in a note via his verified social media account, said the approved Regulations, 2024 are expected to be published in the Official Gazette of the Federal Republic of Nigeria within days.

Withholding Tax is a method form collecting Income Tax in advance, deducted at rates ranging from five percent to 10 percent, and it is applicable on specified transactions.

Mr. Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee

There is no distinction between the WHT rates for resident companies or individuals and non-resident companies or individuals in the country, a PwC report said.

According to the Federal Inland Revenue Service (FIRS), the period for filing WHT is 21 days after the duty to deduct arose for deductions from companies, and the penalty for failure to deduct or remit tax is 10 percent of the amount not deducted/remitted.

It is equally noted that companies are required to submit, in electronic form, a schedule of all their suppliers for the month showing the Tax Identification Number (TIN), address of the suppliers, the nature of the transaction, WHT deducted, and invoice number.

Explaining the reviewed WHT regime, Mr. Oyedele, whose Committee recently rounded off its national assignment, recalled that Withholding Tax was introduced into the Nigeria tax system in 1977 to serve as an advance payment of income tax on specified transactions.

He also noted that the WHT was designed to provide the government with regular revenue flow, and to serve as a means of curbing tax evasion in the country’s economy.

Challenges of implementing current Withholding Tax regime, by Oyedele

The Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, however, highlighted some of the challenges, which implementation of the existing Withholding Tax regime has encountered over the past five decades, prompting its recent review in Nigeria.

According to him, as the regime expanded over time to cover more transactions, various ambiguities and complications crept in.

He revealed that the development later resulted in how several businesses, especially the Small and Medium Scale Enterprises (SMEs) are being exposed to “excessive burden of compliance and a strain on the working capital of low-margin businesses.”

Oyedele stated other unintended consequences of the WHT implementation include ambiguities regarding persons required to comply, eligible transactions, applicable rates and timing of the obligation for remittance, among others.

Treatment of the deduction as a separate tax thereby adding to the list of multiple taxes and cost of doing business; challenges regarding obtaining refunds for excess withholding tax; and lack of exemption threshold making the cost of compliance by taxpayers and cost of enforcement by the tax authority uneconomical.

He enumerated others to include some emerging and contemporary issues are not properly addressed, while the overall structure of the prevailing Withholding Tax regime promoted tax inequity in the economy.

What’s new in revised Withholding Tax regime?

Highlighting some of the major changes in the Withholding Tax regime as part of the ongoing fiscal policy and tax reforms in Nigeria, Oyedele affirmed that a new withholding tax regime has been approved.

The key changes introduced are to address the identified challenges, and specifically include exemption of small businesses (SMEs) from Withholding Tax compliance; reduced rates for businesses with low margins; and exemptions for manufacturers and producers, such as farmers.

According to the Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, other fresh positive changes in the WHT regime are measures to curb evasion and minimise tax avoidance; ease of obtaining credit and utilisation of tax deducted at source; changes to reflect emerging issues and adopt global best practices; and clarity on the timing of deduction and definition of key terms.

“The approved regulation(s) is expected to be published in the Official Gazette in the coming days,” stated Oyedele.