Business Highlight

FG grants withholding tax exemptions to SMEs, farmers, manufacturers

Daniel OkejemeJuly 2, 2024383

Mr. Taiwo Oyedele, the Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, announced on Tuesday that President Bola Tinubu has approved a new withholding tax regime for the country.

Oyedele said that the official gazette is expected to be signed and published in the coming days.

Persecondnews learnt that the new withholding tax regime exempted small businesses, manufacturers, and farmers from payment.

Other key changes in it include lower rates for low-margin businesses, measures to prevent evasion and tax avoidance, and clearer guidelines on deductions and tax terms, aiming to ease the tax burden and promote compliance.

According to Oyedele, the previous withholding tax system, introduced in 1978, had several flaws, including unclear guidelines, an overly broad scope that led to multiple taxes, unfairness, and a strain on the working capital of businesses with narrow profit margins, among other challenges.

Withholding tax is an advance income tax collection system that deducts a percentage (between 5% and 10%) from transactions.

The deducted amount must be remitted to the authorities by the 21st of the next month.

Failure to comply attracts penalties, starting with N25,000 for the first month and N5,000 for each subsequent month of delay.

The revised withholding tax regime features several significant changes, including lower tax rates for businesses with slim profit margins, stricter measures to prevent tax evasion and avoidance, exemption of small businesses from withholding tax, clear guidelines on the timing of deductions, and defined key terms, among other improvements.

He stated: “Withholding tax was introduced into the Nigerian 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 an excessive burden of compliance and a strain on the working capital of low-margin businesses.”

Other benefits of the new withholding tax regime are: “Exemptions for manufacturers and producers, such as farmers; measures to curb evasion; and minimising tax avoidance.

“Ease of obtaining credit and utilisation of tax deducted at source; changes to reflect emerging issues and adopt global best practices; clarity on the timing of deduction; and definition of key terms.”

This latest approval is the second in a series of five executive orders aimed at tackling inflation and boosting tax revenue as part of a broader strategy to stimulate economic growth and improve fiscal stability.