Nigeria’s federal government passed a new withholding tax regime on Tuesday, 2 July 2024, following the country’s ongoing efforts to reform its fiscal and taxation system. These changes include reduced rates for businesses with low margins and measures to combat tax evasion.
Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, announced this on his official X handle, stating that the new regulations will be published in the Official Gazette in the coming days.
“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,” wrote Oyedele. “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,” he added.
The key changes in the new withholding tax regime include:
- Exemption of small businesses from Withholding Tax compliance;
- Reduced rates for businesses with low margins;
- 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;
- Clarity on the timing of deduction and definition of key terms.
