FG exempts manufacturers, farmers from new withholding tax regime

The Federal Government (FG) said a simplified and business-friendly withholding tax regime has been approved. The FG has, however, exempted manufacturers and farmers.

The Chairman of the Tax and Fiscal Reform committee, Taiwo Oyedele, confirmed this in a statement on Tuesday.

“As part of the ongoing fiscal policy and tax reforms of FG, a new withholding tax regime has been approved,” Oyedele wrote on X.

“The key changes introduced are to address the identified challenges and specifically include: Exemption of small businesses from Withholding Tax compliance.”

According to him, some of the other changes effected are reduced rates for businesses with low margins, exemptions for manufacturers and producers such as farmers as well as measures to curb evasion and minimise tax avoidance.

Also included are the ease of obtaining credit and utilisation of tax deducted at source, changes to reflect emerging issues and adopt global best practices as well as clarity on the timing of deduction and definition of key terms.

Oyedele added that the approved regulation is expected to be published in the official gazette of the Federation in the coming days.

The withholding tax was introduced into the Nigerian tax system in 1977 to serve as an advanced payment of income tax on specified transactions.

The tax committee chairman said the withholding tax was designed to provide the government with regular revenue flow and to serve as a means of curbing tax evasion.

Oyedele, however, said challenges started coming up as the regime expanded over time to cover more transactions with various ambiguities and complications creeping in.

This, he said, resulted in many businesses, especially Small and medium-sized enterprises (SMEs), being exposed to excessive burden of compliance and a strain on the working capital of low-margin businesses.

“Other unintended consequences include: Ambiguities regarding persons required to comply, eligible transactions, applicable rates, and timing of the obligation for remittance, among others,” Oyedele stated.

“Also included is treatment of the deduction as a separate tax, thereby adding to the list of multiple taxes and cost of doing business.

“Others are challenges regarding obtaining refunds for excess withholding tax and lack of exemption threshold making the cost of compliance by taxpayers and cost of enforcement by the tax authority uneconomical.”

Oyedele said other unintended consequences are emerging issues that are yet to be addressed regarding the structure of the withholding tax regime to promote tax inequity.