The projected stream of income from the collection of withholding taxes is expected to raise the revenue profile of the federal government, experts have assured.
Speaking with a cross-section of financial and economic pundits at the weekend they expressed optimism that the new policy regime on withholding tax has the potential to raise the tax revenue on the one hand as well as encourage tax compliance ultimately.
It may be recalled that the Chairman of the Presidential Tax Reform Committee, Mr Taiwo Oyedele, during a chat with newsmen had disclosed that the new template of the withholding tax administration which takes effect soon will not only simplify its methodology but also change the face of tax administration in such a way that the citizens would reap the benefits.
From available information, the Committee among other things sought to reduce the burden on taxpayers, essentially increasing exemptions or zero-rated taxes for sectors like education, health care, transportation, agriculture, food, etc.
While commenting on what the projected revenue the country stands to get from the receipt of withholding taxes, Victor Athe, Partner, Tax Services, Stransact Chartered Accountants and Audit, an RSM correspondent firm in Nigeria, said improved compliance with withholding tax should actually bring about an increase in the number of taxpayers in the tax net.
Pressed further, Athe said, “While increased withholding tax payment should not actually translate into increased revenue for the government, it can potentially improve collection of major taxes like income tax- corporate, personal and VAT. Part of the amendments introduced by the new withholding regulations is that where a non-registered entity issues a sales invoice, the withholding tax rate to be applied should be double the rate ordinarily applicable.
“This would potentially drive a lot of businesses currently operating outside the tax net to get registered quickly for tax compliance purposes, since they would not want to suffer the attendant cash-flow implications.”
Athe also noted that the new regulations now also requires that where an entity makes tax deductions from the invoice of a supplier and remits to the relevant tax authority, it should issue the supplier a receipt containing all relevant information of the supplier’s name, address, Tax Identification Number, National Identification Number in the case of an individual or RC number in the case of a company, nature of transactions, gross amount payable, amount deducted and month of the transaction.
“The supplier can use this receipt to claim the income tax credit from its relevant tax authority (whether the entity that made the tax deduction has remitted the amount deducted, or not). The relevant tax authority will impose applicable penalty and interest charges where the tax amounts deducted are not remitted timely.”
That way, the federal government will rake in more revenue as a result especially from those who run afoul of the tax laws.
Sharing similar sentiments, Victor Ndukauba, Group Deputy Managing Director, Afrinvest West Africa Limited, who recalled that he attended a session during the public hearing organised by the Presidential Tax Reform Committee early in the year, said “What was discussed at that session in the law that has been passed the overall idea and the overarching objective of that Committee was just to simplify tax law. The other thing they also wanted to do was also simplify collections and the operations, really, so that it’s easier for businesses to comply absolutely.
“I think one of the issues was the number of taxes that are even paid, both at the federal and state levels. So one of the objectives, if I recall, was to reduce the number in total to single digits and then with respect to WHT, which is I think where they were also looking to make some bigger amendments, the idea was sort of like two-pronged.
“On the one hand, compliance is difficult. It imposes a burden on businesses, especially small businesses with low margins, between deductions, remittance, and all that. And then when you have to claim a refund, it’s almost impossible.”
Echoing similar views, Peter Sunday Adebola, Managing Director Edgefield Capital Management Limited, an investment-driven company with interest in major commanding heights of the economy, said in terms of revenue projection, “What the government only have done is to remove the SMEs from this withholding tax administration and even to varying it from 5 to 10 percent. So now the question is, our economy is – that mostly SMEs actually control the economy.
“So, in my own thinking is that with this, it’s going to reduce the burden on all those SMEs and that can actually boost economic growth because all those people now have enough money to do their business, rather than paying – because some of them have grown in other tax burdens before. I think that is what the government looks at. They say, okay, if anybody that is earning 25 million, less than 25 million, let us exempt them from this withholding tax. You know, withholding tax is the tax that is deducted from the source. If you are giving somebody a contract or somebody is making – yes, it’s actually a contract tax.”