THE Federal Government of Nigeria has approved the exemption of withholding tax for small businesses, manufacturers, and farmers.
The chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, disclosed this on his official X-handle on Tuesday, July 2.
He said the approved regulation was expected to be published in the country’s official gazette in the coming days.
According to Oyedele, a simplified and business-friendly withholding tax regime has been approved as part of the ongoing fiscal policy and tax reforms.
He said the committee introduced some critical changes to address the identified challenges in the withholding tax system.
The key changes, he said, include the exemption of small businesses from withholding tax compliance; reduction of tax rates for businesses with low margins; exemption of manufacturers and producers such as farmers; and measures to curb evasion and minimise tax avoidance.
Other changes made are 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.
Giving a background to the withholding tax regime, Oyedele said, “Withholding tax was introduced into the Nigeria tax system in 1977 to serve as an advance payment of income tax on specified transactions.
“It was designed to provide the government with regular revenue flow and to serve as a means of curbing tax evasion.”
He explained that the challenge with the tax regime has been its expansion over time to cover more transactions, as such, 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,” the tax expert maintained.
He highlighted other unintended consequences including ambiguities regarding persons required to comply, eligible transactions, applicable rates, and timing of the obligation for remittance, among others.
It also includes challenges regarding obtaining refunds for excess withholding tax, and treatment of the deduction as a separate tax, thereby adding to the list of multiple taxes and cost of doing business.
He noted the lack of an exemption threshold as making the cost of compliance by taxpayers and the cost of enforcement by the tax authority uneconomical.
Other unintended consequences are some emerging and contemporary issues that are not properly addressed; and the overall structure of the withholding tax regime that promoted tax inequity, Oyedele added.
The ICIR reported that President Bola Tinubu appointed Oyedele to lead the tax reform team with the mandate to reform and harmonise the country’s fiscal policy and tax system.
The organisation had also reported that the committee had proposed a reduction in multiple taxes and made other changes in the draft copy of the ‘National Fiscal Policy Framework,’ it submitted to the National Assembly.