Abuja, Nigeria – President Bola Tinubu has approved a significant overhaul of Nigeria’s withholding tax policy, modernizing the tax system initially established in 1977. This update aims to alleviate the tax burden on farmers and Small and Medium Enterprises (SMEs), according to Taiwo Ayodele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms.
Background and Issues with the Old Policy
Withholding tax was introduced to Nigeria’s tax system in 1977 to serve as an advance payment of income tax on specified transactions, providing regular revenue flow and curbing tax evasion. However, the old system faced several challenges:
- Ambiguities: Unclear definitions regarding compliance requirements, eligible transactions, applicable rates, and timing of remittance.
- Separate Tax Treatment: Adding to the list of multiple taxes and increasing the cost of doing business.
- Refund Issues: Difficulty in obtaining refunds for excess withholding tax.
- No Exemption Threshold: Uneconomical compliance and enforcement costs.
- Emerging Issues: Inadequate addressing of contemporary tax issues.
Key Changes in the New Policy
The newly approved withholding tax policy introduces several key changes:
- Exemptions: Small businesses and manufacturers, such as farmers, are exempt from withholding tax compliance.
- Reduced Rates: Businesses with low margins will benefit from reduced withholding tax rates.
- Ease of Compliance: Enhanced measures to curb tax evasion, simplified processes for obtaining tax credits, and utilization of tax deducted at source.
- Global Best Practices: Updates to reflect emerging issues and adopt global best practices.
- Clarity and Definitions: Clear guidelines on the timing of deductions and definitions of key terms.
Implementation
The new withholding tax regime document will be published in the official gazette within a few days, as disclosed by Ayodele. This reform is expected to promote tax equity and simplify the tax system, benefiting the Nigerian economy and easing the compliance burden on businesses.
Official Statements
Ayodele stated, “The old withholding tax regime promoted tax inequity and imposed unnecessary burdens on small businesses and farmers. The new policy will provide much-needed relief and support for these vital sectors of our economy.”
He added, “We are committed to ensuring that the tax system is fair, efficient, and conducive to economic growth. This reform is a significant step in that direction.”
The approval of this new withholding tax policy underscores the Tinubu administration’s dedication to improving Nigeria’s fiscal landscape, making it more business-friendly and efficient.
For further details, the official gazette will provide comprehensive information on the new policy’s implementation and guidelines.