Expect gazette exempting SMEs, farmers, manufacturers from paying withholding tax soon – Presidency

Expect gazette exempting SMEs, farmers, manufacturers from paying withholding tax soon – Presidency

Newly approved withholding tax regulation exempting the Small and Medium Enterprises (SMEs), farmers and some manufacturers from paying withholding tax will be published in the official gazette in the coming days.

Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, disclosed this on Tuesday.

The new tax regime also includes a reduction of rates for businesses with low margins and measures to curb tax evasion.

Oyedele, in a post via X on Tuesday, said, “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 and reduced rates for businesses with low margins.

“Exemptions for manufacturers and producers such as farmers, 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.”

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).

The WHT is deducted at varying rates ranging from five per cent to 10 per cent, depending on the transaction.

On June 3, Oyedele announced that the Federal Government had 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 included ambiguities regarding persons required to comply, eligible transactions, applicable rates, and timing of the obligation for remittance.