Firms without Tax Identification Number (TIN) will not enjoy the exemption from Withholding Tax payment.
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This is one of the conditions stipulated in the Withholding Tax reform regulation which took effect on January 1.
In the new regime, small businesses with low margins of returns are completely exempted from payment of Withholding Tax.
However, they have been mandated by the Federal Government to deduct Withholding Tax while making payments to any of their suppliers without TIN.
Suppliers who exceed N2 million payments per month will also not enjoy the exemption from payment of Withholding Tax.
But, if a small business fails to deduct tax as mandated, it may face administrative penalties.
Besides, failure to remit deducted taxes could attract penalties and interest charges.
The easing of fiscal obligations is expected to lower the cost of working capital, leading to enhanced cash flow and a more favourable business climate.
One critical aspect of the new regulations concerns the proper reporting of tax deductions when suppliers do not have a TIN.
Under such circumstances, businesses are instructed to record the National Identification Number (NIN) for individuals and the Registration Certificate (RC) number for companies.
The Withholding Tax rate applicable in these cases is doubled. However, this increased rate does not apply to investment income, including dividends, interest, and rent.
Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reform Committee, noted that the new tax measures have been designed to bolster compliance while simultaneously promoting business continuity among small enterprises.
The regulations provide a clear definition of a small business as any entity with an annual turnover not exceeding N25 million. But discussions to raise the threshold to N50 million are underway.
The new regulations state that suppliers cannot demand that tax deductions be grossed up, ensuring that the cost of such deductions does not unjustly inflate the financial responsibilities of small businesses.
Furthermore, the regulations stipulate that Withholding Tax is not applicable on payments due to small businesses under specified conditions, including those with annual turnovers below N25 million and businesses engaged in manufacturing, agriculture, and other production activities.
Transactions involving cash sales or instant electronic payments are also exempted.
In terms of compliance, small businesses are relieved from the requirement to file monthly withholding tax returns unless they have withheld taxes the previous month.
This policy simplifies administrative burdens, allowing businesses to focus more on growth than on regulatory paperwork.
With the comprehensive reforms, the government aims to enhance transparency and accountability in the tax system, while simultaneously providing a supportive framework for the growth of small businesses across the nation.
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