FG Announces Revised Withholding Tax Regime: Exemptions for Small Businesses, Farmers, and Manufacturers - LivestockTrend


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Wednesday 3 July 2024

FG Announces Revised Withholding Tax Regime: Exemptions for Small Businesses, Farmers, and Manufacturers

The Nigerian federal government has recently announced significant revisions to the country's withholding tax regime, aimed at enhancing clarity, reducing burdens on low-margin businesses, and combating tax evasion.

Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, unveiled these changes through official channels, indicating that the updated regulations will soon be gazetted. This overhaul addresses longstanding issues with the previous withholding tax system, which dates back to 1978 and has faced challenges due to its complexity and the expanding scope of taxable transactions.

Key highlights of the revised regime include reduced withholding tax rates tailored for businesses with narrow profit margins, stringent measures to prevent tax evasion and avoidance, and crucial exemptions for small enterprises. Manufacturers and producers, including farmers, will benefit from these exemptions, which aim to alleviate tax pressures and support economic growth.

"Withholding tax was initially introduced in 1977 to facilitate prepayment of income tax on specified transactions," explained Oyedele. "Over time, its application grew, leading to ambiguities and undue compliance burdens, particularly for SMEs and businesses operating on tight margins."

The reforms also aim to streamline processes for tax credit utilization, align with global best practices, and provide clear guidelines on timing deductions and essential terminology. These changes reflect ongoing efforts in fiscal policy and tax reforms to create a more equitable and efficient tax environment in Nigeria.

Previously, Oyedele had signaled the committee's intent to exempt manufacturers and farmers from withholding tax during a recent workshop with journalists, underscoring the government's commitment to easing the tax burden on businesses.

The Federal Inland Revenue Service (FIRS) defines withholding tax (WHT) as an advance payment mechanism for income tax, typically deducted at rates ranging from 5% to 10% based on transaction types. Returns are due by the 21st of the subsequent month, with penalties for late filing designed to enforce compliance.

These reforms are part of a broader strategy to simplify tax codes and reduce the overall tax burden on businesses, a move that aims to stimulate economic growth and enhance compliance across Nigeria.

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