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FG to put into record order exempting SMEs, manufacturers from paying withholding tax, Oyedele reveals

FG to put into record order exempting SMEs, manufacturers from paying withholding tax, Oyedele reveals

 

 

Chairman of the presidential committee on fiscal policy and tax reforms, Taiwo Oyedele, has said the newly approved withholding tax regulation will be published in the official gazette in the coming days.

Withholding tax (WHT) is an advance payment of income tax which may be used to offset or reduce tax liabilities, according to the Federal Inland Revenue Service (FIRS).

WHT is deducted at varying rates ranging from 5 percent to 10 percent depending on the transaction.

On June 3, Oyedele announced that the federal government has approved the exemption of small businesses earning N25 million and less from withholding tax.

Giving updates in a post on X on Tuesday, Oyedele said the approved regulation includes measures to curb evasion and minimise avoidance.

“Withholding tax was introduced into the Nigeria tax system in 1977 to serve as an advance payment of income tax on specified transactions,” he said.

“It was designed to provide the government with regular revenue flow and to serve as a means of curbing tax evasion.

“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.”

Oyedele said some other unintended consequences include ambiguities regarding persons required to comply, eligible transactions, applicable rates, and timing of the obligation for remittance, among others.

He said the deduction was treated as a separate tax, thereby adding to the list of multiple taxes and the cost of doing business.

According to the policy expert, challenges were also encountered regarding obtaining refunds for excess withholding tax.

He said there was also a lack of exemption threshold making the cost of compliance by taxpayers and the cost of enforcement by the tax authority uneconomical.

In addition, some emerging and contemporary issues were not properly addressed, and the overall structure of the withholding tax regime promoted tax inequity, the committee’s chairman said.

 

Oyedele said the key changes introduced in the new withholding tax regime are to address the identified challenges.

The tax expert said the newly-approved regulations include measures for “exemption of small businesses from withholding tax compliance”.

He said the regulations also introduced key changes to aid “reduced rates for businesses with low margins, and exemptions for manufacturers and producers such as farmers”.

Oyedele said the regulations have been updated to address the ease of obtaining credit and utilisation of tax deducted at source, adding that changes have been made to reflect emerging issues and adopt global best practices.

He said it would also provide clarity on the “timing of deduction and definition of key terms”.

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