President Bola Tinubu has approved a new withholding tax policy for the country altering the existing 1977 Nigeria tax system.
The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, disclosed this on Tuesday.
Oyedele said the new withholding tax policy has laid to rest the heavy burden of the previous policy document on farmers and Small and Medium Enterprises.
“Withholding tax was introduced into the Nigeria tax system in 1977 to serve as an advance payment of income tax on specified transactions. It was designed to provide the government with regular revenue flow and to serve as a means of curbing tax evasion,” Taiwo gave as background.
He listed the challenges of the old withholding tax regime to include, “Ambiguities regarding persons required to comply, eligible transactions, applicable rates, and timing of the obligation for remittance, among others.
“Treatment of the deduction as a separate tax, thereby adding to the list of multiple taxes and cost of doing business. Challenges regarding obtaining refunds for excess withholding tax.
“Lack of exemption threshold making the cost of compliance by taxpayers and cost of enforcement by the tax authority uneconomical. Some emerging and contemporary issues are not properly addressed,” the Tax Reform Chairman said.
He said the overall structure of the withholding tax regime promoted tax inequity.
Oyedele further disclosed that the new withholding tax regime document approved by Tinubu would be published in the official gazette in few days.
He identified the key changes made to include: “Exemption of small businesses from Withholding Tax compliance. Reduced rates for businesses with low margins. Exemptions for manufacturers and producers such as farmers.”
He added that measures to curb evasion and minimise tax avoidance, ease of obtaining credit and utilisation of tax deducted at source, changes to reflect emerging issues and adopt global best practices and clarity on the timing of deduction and definition of key terms, as other reforms in the new withholding tax policy.