The Federal Government has adopted a new withholding tax policy which will bring relief to thousands of small and medium-sized enterprises (SMEs) throughout the country.
This development is expected to bring clarity and simplicity to the tax system, which has been plagued by ambiguities and complications since its introduction in 1977.
The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, said that the newly approved withholding tax regulation will be published in the official gazette soon.
Withholding tax is an advance payment of income tax that can be used to offset or reduce tax liabilities.
The Federal Inland Revenue Service (FIRS) deducts withholding tax at varying rates of 5-10 percent depending on the transaction.
However, the previous regime was criticised for its complexities, which led to excessive compliance burdens on businesses, especially small and medium-sized enterprises (SMEs).
Oyedele revealed that the federal government has exempted small businesses earning N25 million or less from withholding tax, effective June 3.
This exemption is expected to provide relief to SMEs, which have been struggling to comply with the complex tax regulations.
The new regulation also introduces reduced rates for businesses with low margins, as well as exemptions for manufacturers and producers, such as farmers.
The chairman of the presidential committee noted that the previous regime was marred by ambiguities regarding persons required to comply, eligible transactions, applicable rates, and timing of remittance.
These ambiguities led to tax evasion, avoidance, and difficulties in obtaining refunds for excess withholding tax.
Moreover, the lack of exemption threshold made compliance and enforcement uneconomical for both taxpayers and the tax authority.
The newly approved regulation addresses these challenges by providing clarity on the timing of deduction and definition of key terms.
It also adopts global best practices to ensure that the tax system is fair, equitable, and conducive to business growth.
Oyedele emphasised that the regulation has been updated to reflect emerging issues and contemporary challenges, ensuring that the tax system is dynamic and responsive to the needs of businesses.
The publication of the new regulation in the official gazette is expected to provide a much-needed boost to Nigeria’s business environment.
By simplifying the tax system and reducing compliance burdens, the government aims to encourage entrepreneurship, stimulate economic growth, and increase revenue generation.
As Oyedele noted, the new regulation is a significant step towards creating a more conducive environment for businesses to thrive in Nigeria.