President Bola Tinubu has approved a new withholding tax policy, replacing the old policy established in 1977.
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Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele announced this on Tuesday.
The new withholding tax policy introduces significant reforms designed to alleviate the heavy burden that the previous system imposed on farmers and Small and Medium Enterprises (SMEs).
According to Oyedele, the updated regime addresses several long-standing challenges and introduces specific provisions, including: Small businesses will now be exempt from withholding tax compliance, reducing their administrative and financial burdens; businesses with low profit margins will benefit from reduced withholding tax rates, easing their cash flow and operational costs and producers, particularly farmers, will receive exemptions, fostering growth and sustainability in these critical sectors.
Others are the new measures aim to enhance compliance and reduce opportunities for tax evasion and avoidance. The policy streamlines the process of obtaining credit and utilizing tax deducted at source, making it more accessible for businesses. Updates to the new withholding tax regime will reflect emerging issues and align with global best practices, ensuring Nigeria’s tax system is contemporary and effective, and the new policy will provide clear guidelines on the timing of deductions and definitions of key terms, eliminating ambiguities.
DEDUCTION OF TAX AT SOURCE (WITHHOLDING) REGULATIONS 2024_T.Oyedele-1Oyedele identified several issues with the previous withholding tax regime, which evolved to cover more transactions over time, leading to complications and unintended consequences.
According to him: “Businesses, especially Small and Medium Enterprises (SMEs), faced ambiguities regarding compliance, eligible transactions, applicable rates, and remittance timing. This complexity resulted in an excessive compliance burden and strained working capital for low-margin businesses”.
Other identified challenges include previous system treated withholding tax as a separate tax, adding to the list of multiple taxes and increasing the cost of doing business. Obtaining refunds for excess withholding tax was problematic, causing further financial strain on businesses. The lack of an exemption threshold made compliance costs uneconomical for taxpayers and enforcement costs high for tax authorities. Also, the overall structure of the old regime promoted tax inequity, failing to address emerging and contemporary issues effectively.
The new withholding tax policy is expected to bring significant relief and clarity to Nigerian businesses, promoting a more equitable and efficient tax system. The approved regulations will be published in the official gazette in the coming days, formalizing the changes and providing detailed guidelines for compliance.
This reform marks a critical step in Nigeria’s ongoing fiscal policy and tax reforms, demonstrating President Tinubu’s commitment to creating a more conducive environment for businesses to thrive.
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