According to Vanguard, the Federal Government of Nigeria has decided to exempt small businesses, manufacturers, and farmers from withholding tax.
Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, announced this pivotal decision, highlighting the government's dedication to fostering a more supportive tax environment for businesses across the nation.
The decision, disclosed through an official statement on Tuesday, marks a pivotal change in Nigeria's tax regime, designed to alleviate financial pressures on businesses with low profit margins. Oyedele highlighted that President Bola Tinubu has sanctioned the new withholding tax regime, with its official gazette expected to be signed imminently.
The withholding tax system, originally introduced in 1977, has been a pivotal tool for collecting income tax in advance, typically deducted at rates ranging from 5% to 10% based on transaction values. Over the years, however, its scope expanded significantly, leading to complexities and ambiguities that burdened small and low-margin businesses disproportionately. These challenges included excessive compliance requirements and strains on working capital.
Addressing these concerns, Oyedele outlined the key reforms incorporated into the rewritten withholding tax regime. Notably, the new framework includes reduced tax rates tailored for businesses operating on narrow profit margins. Additionally, measures have been introduced to combat tax evasion and avoidance, ensuring a fairer and more transparent tax system.
"Exempting small businesses, manufacturers, and farmers from withholding tax compliance is a strategic step towards fostering economic growth and supporting entrepreneurship," Oyedele remarked. He stressed that these exemptions aim to enhance the ease of doing business in Nigeria, particularly for entities crucial to the country's industrial and agricultural sectors.
Moreover, the reforms aim to streamline the process of obtaining credit and utilizing tax deductions at the source, aligning Nigerian tax practices with global standards and best practices. Clarity on the timing of deductions and definitions of key terms further contribute to simplifying tax compliance for businesses across various sectors.
The approval of this revised tax regime is part of broader fiscal policy and tax reforms initiated by the government. It represents the second executive order of a planned series aimed at reducing inflationary pressures and bolstering tax revenue streams. The reforms are expected not only to alleviate financial burdens on businesses but also to stimulate economic activities across key sectors vital to Nigeria's growth trajectory.