The Federal Government on Tuesday Morning approved exemption of small enterprises, manufacturers, and farmers from paying withholding tax to reduce tax burden.
FG, made significant modifications to the previous tax structure, such as lowering rates for enterprises with modest margins and implementing steps to combat evasion.
Report disclosed that Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele made the announcement on Tuesday morning via his official X handle that President Bola Tinubu had approved the country’s new withholding tax regime, with the official gazette expected to be signed in the coming days.
According to Taiwo, the previous withholding tax system, which was implemented in 1978, had issues such as uncertainty caused by the rise in transactions that it covered, resulting in a longer list of various taxes, injustice, straining the working capital of firms with low margins, and so on.
Withholding Tax is a way of collecting income tax in advance, with rates ranging from 5% to 10% depending on the transaction. Returns are required by the 21st of the following month. Late filing carries a penalty of N25,000 for the first month and N5,000 for each successive month of noncompliance.
The tax expert went on to say that key changes to the rewritten withholding tax regime include lower rates for low-margin businesses, measures to combat evasion and tax avoidance, exemption of small businesses from withholding tax, clarity on the timing of deductions, and key terms, among others.
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.”
“As part of the ongoing fiscal policy and tax reforms, a new withholding tax regime has been approved. The key changes introduced are to address the identified challenges and specifically include 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.
Source: The Sun.
