Taiwo Oyedele, chairman of the presidential committee on fiscal policy and tax reforms, says the newly approved withholding tax regulation will be published in the official gazette in the coming days.
Withholding tax (WHT) is an advance payment of income tax
which may be used to offset or reduce tax liabilities, according to the Federal
Inland Revenue Service (FIRS).
WHT is deducted at varying rates ranging from 5 percent to
10 percent depending on the transaction.
On June 3, Oyedele announced that the federal government has
approved the exemption of small businesses earning N25 million and less from
withholding tax.
Giving updates in a post on X on Tuesday, Oyedele said the
approved regulation includes measures to curb evasion and minimise avoidance.
“Withholding tax was introduced into the Nigeria tax system
in 1977 to serve as an advance payment of income tax on specified
transactions,” he said.
“It was designed to provide the government with regular
revenue flow and to serve as a means of curbing tax evasion.
“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.”
Oyedele said some other unintended consequences include
ambiguities regarding persons required to comply, eligible transactions,
applicable rates, and timing of the obligation for remittance, among others.
He said the deduction was treated as a separate tax, thereby
adding to the list of multiple taxes and the cost of doing business.
According to the policy expert, challenges were also
encountered regarding obtaining refunds for excess withholding tax.
He said there was also a lack of exemption threshold making
the cost of compliance by taxpayers and the cost of enforcement by the tax
authority uneconomical.
In addition, some emerging and contemporary issues were not
properly addressed, and the overall structure of the withholding tax regime
promoted tax inequity, the committee’s chairman said.
KEY CHANGES TO
WITHHOLDING REGULATIONS
Oyedele said the key changes introduced in the new
withholding tax regime are to address the identified challenges.
The tax expert said the newly-approved regulations include
measures for “exemption of small businesses from withholding tax compliance”.
He said the regulations also introduced key changes to aid
“reduced rates for businesses with low margins, and exemptions for
manufacturers and producers such as farmers”.
Oyedele said the regulations have been updated to address
the ease of obtaining credit and utilisation of tax deducted at source, adding
that changes have been made to reflect emerging issues and adopt global best
practices.
He said it would also provide clarity on the “timing of
deduction and definition of key terms”.
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