In a significant move to alleviate the tax burden on small businesses, farmers, and manufacturers, the Nigerian government has announced the exemption of these sectors from paying withholding tax. This decision aims to foster economic growth and ease financial pressures on businesses with low margins.
The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, shared this development via a post on his official X handle on Tuesday morning. Oyedele revealed that President Bola Tinubu has approved the new withholding tax regime, with the official gazette expected to be signed in the coming days.
The previous withholding tax system, introduced in 1978, had become increasingly problematic due to the expansion of transactions it covered, leading to multiple taxes and financial strain on businesses. Oyedele highlighted that the new regime addresses these challenges by introducing several key changes.
Key modifications in the updated withholding tax regime include:
– Exemption of Small Businesses: Small enterprises will no longer need to comply with withholding tax, significantly reducing their tax burden.
– Reduced Rates for Low-Margin Businesses: Businesses with low profit margins will benefit from lower withholding tax rates, improving their financial sustainability.
– Exemptions for Manufacturers and Farmers: Producers, including farmers, will also be exempt from withholding tax, supporting the growth of essential sectors.
– Measures to Curb Evasion and Avoidance: New measures will be implemented to minimize tax evasion and avoidance, ensuring fair tax compliance.
– Clarity on Timing and Definitions: The regime provides clear guidelines on the timing of tax deductions and definitions of key terms, simplifying compliance for businesses.
“Withholding tax was introduced into the Nigerian tax system in 1977 as an advance payment of income tax on specified transactions,” Oyedele explained. “However, as the regime expanded over time, it led to ambiguities and complications, imposing excessive compliance burdens on many businesses, especially SMEs, and straining the working capital of low-margin businesses.”
This reform is part of a broader series of fiscal policy and tax reforms aimed at addressing these issues and adopting global best practices. The latest approval marks the second of five planned executive orders designed to reduce inflation and enhance tax revenue.
With these changes, the Nigerian government demonstrates its commitment to creating a more business-friendly environment and supporting the country’s economic growth.
