The Federal Government has introduced a new Withholding Tax (WHT) regime for businesses in the country by lowering the rates for enterprises with low margins and as a fiscal measure of preventing tax evasion.
The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Mr Taiwo Oyedele, announced the new WHT regime on his official X handle, stating that an official gazette on the fiscal measure will be signed within the next few days.
Oyedele stated that the erstwhile WHT which was introduced in 1977 had become obsolete and the implementation was fraught with challenges such as the ambiguity occasioned by the increase in the transactions it covered, thereby accentuating the current problem of multiple taxes, inequity, and straining the capital of businesses with low margins, amongst other weaknesses.
The tax expert listed some of the key changes introduced in the new WHT regime as including, in addition to the reduction of rates for businesses with low margins, measures to curb tax evasion and avoidance, exemption of small businesses, clarity on timing of deduction, key terminologies and so on.
His post on the X handle reads: “Withholding tax was introduced into the Nigeria tax system in 1977 to serve as an advance payment of income tax on specified transactions.
“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.
“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 minimize tax avoidance
5) Ease of obtaining credit and utilization 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”, Oyedele added.
It would be recalled that the tax expert had about six weeks ago during interactive sessions with journalists hinted of the committee’s proposal to exempt manufacturers and farmers from WHT payment as part of the efforts to reduce tax burden on businesses.
The WHT is an income tax being collected in advance by the Federal Inland Revenue Service and the rates range from 5%-!0% based on the type of transaction and the return filing is due by the 21st day following the month of the transaction.
