The Nigerian government has officially gazetted the Withholding Tax Regulations 2024, according to an announcement by Taiwo Oyedele, Chairman of the Presidential Task Force on Fiscal Policy and Tax Reforms Committee. The regulations are set to be published today, introducing significant changes to address long-standing challenges and promote equity in the tax system.
Background
Withholding tax was introduced into the Nigerian 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.
Challenges
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.
Other unintended consequences include:
1) Ambiguities regarding persons required to comply, eligible transactions, applicable rates, and timing of the obligation for remittance, among others.
2) Treatment of the deduction as a separate tax, thereby adding to the list of multiple taxes and cost of doing business.
3) Challenges regarding obtaining refunds for excess withholding tax.
4) Lack of exemption threshold making the cost of compliance by taxpayers and cost of enforcement by the tax authority uneconomical.
5) Some emerging and contemporary issues are not properly addressed.
6) The overall structure of the withholding tax regime promoted tax inequity.
Key Changes
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:
1) Exemption of small businesses from Withholding Tax compliance
2) Reduced rates for businesses with low margins
3) Exemptions for manufacturers and producers such as farmers
4) Measures to curb evasion and minimise tax avoidance
5) Ease of obtaining credit and utilisation of tax deducted at source
6) Changes to reflect emerging issues and adopt global best practices
7) Clarity on the timing of deduction and definition of key terms
The approved regulation has been published in the official gazette, available for download below.
Speaking on Channels TV’s Independence Day special event, ‘Nigeria’s Challenging Economy: Strategies For Recovery’, Oyedele disclosed that the gazetting of the regulations had been completed, with publication delayed only due to the public holiday. “First thing tomorrow, you will see a copy of the gazette,” he stated.
Oyedele also revealed that the Economic Stabilisation Bill, which his committee had been working on for several months, has been approved by the Federal Executive Council and will soon be sent to the National Assembly for passage into law.
Businesses and tax professionals eagerly await the publication of the official gazette to understand the full implications of the Withholding Tax Regulations 2024 on their operations and compliance requirements.