President Bola Tinubu has approved a new, business-friendly withholding tax policy which grants exemptions to small businesses and farmers.
Taiwo Oyedele, the chairman of the presidential fiscal policy and tax reforms committee, announced the approval, via his official X handle on Tuesday.
According to the Federal Inland Revenue Service (FIRS), Withholding Tax (WHT) serves as a prepayment of Income Tax, deducted at rates between 5 and 10 percent, depending on the transaction. Withholding tax had been introduced into Nigeria’s tax system in 1977 as an advance payment of income tax on specified transactions.
GloOyedele said while it provided the government with a steady revenue stream and helped curb tax evasion, withholding tax had expanded over time, becoming increasingly complex and burdensome.
According to him, the complexity led to ambiguities regarding compliance, eligible transactions, applicable rates, and the timing of remittance.
Small businesses, in particular, faced excessive compliance burdens, straining their working capital. He said the newly approved regime aimed to address these challenges and introduce several key changes.
Oyedele said on Tuesday that “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 the exemption of small businesses from Withholding Tax compliance.”
Businesses operating on low margins will also benefit from reduced withholding tax rates, easing financial pressures.
He also said the new regime included specific exemptions for manufacturers and producers, such as farmers, supporting the agricultural sector.
Oyedele said measures are also introduced to curb evasion and minimise tax avoidance, ensuring a fairer tax system.
The reforms will also simplify the process for businesses to obtain credit and utilise tax deducted at source, improving liquidity.
He said the changes also addressed emerging issues and aligned with global best practices, ensuring the tax system remained contemporary and effective and provided clarity on the timing of deductions and the definition of key terms.
Oyedele said the approved regulations are expected to be published in the official gazette in the coming days.