By Stanley Onyeka, Lagos
The Federal Government yesterday approved the exemption of small businesses, manufacturers and farmers from paying withholding tax, to reduce tariff burden on businesses.
Withholding Tax is a process of collecting Income Tax in advance, deducted at rates between 5 and 10% based on the transaction.
The Chairman, Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, in a post on his official X handle informed that President Bola Tinubu has approved the new withholding tax regime for the country with the official gazette expected to be signed in the days ahead.
The new regime also introduced key changes to the previous tax regime such as reduction of rates for businesses with low margins and measures to curb evasion.
Explaining the rationale behind the review, Mr. Oyedele noted that the former withholding tax system introduced in 1978 had challenges thereby increasing the list of multiple taxes with low margins and a host of other effects.
As the regime expanded over time to cover more transactions, various ambiguities and complications crept in. This resulted in many businesses, especially SMEs, being exposed to excessive burden of compliance and a strain on the working capital of low-margin businesses.
He said: “Withholding tax was introduced into the Nigeria tax system in 1977 to serve as an advance payment of income tax on specified transactions.
“As the regime expanded over time to cover more transactions, various ambiguities and complications crept in. This resulted in many businesses, especially SMEs, being exposed to excessive burden of compliance and a strain on the working capital of low-margin businesses.”
He added: “As part of the ongoing fiscal policy and tax reforms, a new withholding tax regime has been approved.
The regime covers reduced rates for businesses with low margins, measures to curb evasion and tax avoidance, exemption of small businesses from withholding tax, clarity on the timing of deductions and key terms etc.
Accordingly, the key changes are expected to address the identified challenges, the exemption of small businesses from Withholding Tax compliance, and reduced rates for businesses with low margins.
Others are: “Exemptions for manufacturers and producers such as farmers, 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.”
