President Bola Tinubu has approved a new withholding tax policy, replacing the old system established in 1977.
Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, announced this on Tuesday, July 2.
The new policy introduces significant reforms to ease the burden on farmers and Small and Medium Enterprises (SMEs). Key changes include:
– **Exemption for Small Businesses**: Small businesses will no longer need to comply with withholding tax requirements, reducing their administrative and financial burdens.
– **Reduced Tax Rates for Low-Profit Businesses**: Businesses with low profit margins will benefit from lower withholding tax rates, improving cash flow and reducing operational costs.
– **Exemptions for Farmers**: Farmers and other producers will receive tax exemptions, supporting growth and sustainability in these critical sectors.
The policy also aims to enhance compliance and reduce tax evasion, streamline the process for obtaining tax credits, and align with global best practices. Clear guidelines on the timing of deductions and definitions of key terms will eliminate ambiguities.
Oyedele noted that the old withholding tax regime had become complicated over time, covering more transactions and leading to unintended consequences. The new policy addresses these issues and modernizes Nigeria’s tax system.
He said: “Businesses, especially Small and Medium Enterprises (SMEs), faced ambiguities regarding compliance, eligible transactions, applicable rates, and remittance timing. This complexity resulted in an excessive compliance burden and strained working capital for low-margin businesses.”
Other identified challenges include previous system treated withholding tax as a separate tax, adding to the list of multiple taxes and increasing the cost of doing business. Obtaining refunds for excess withholding tax was problematic, causing further financial strain on businesses. The lack of an exemption threshold made compliance costs uneconomical for taxpayers and enforcement costs high for tax authorities. Also, the overall structure of the old regime promoted tax inequity, failing to address emerging and contemporary issues effectively.
The new withholding tax policy is expected to bring significant relief and clarity to Nigerian businesses, promoting a more equitable and efficient tax system. The approved regulations will be published in the official gazette in the coming days, formalizing the changes and providing detailed guidelines for compliance.
This reform marks a critical step in Nigeria’s ongoing fiscal policy and tax reforms, demonstrating President Tinubu’s commitment to creating a more conducive environment for businesses to thrive.
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