President Bola Tinubu has altered the 1977 Nigeria Tax System and approved a new withholding tax policy for the country. This major change was disclosed by Taiwo Ayodele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, on Tuesday.
1977 Nigeria Tax System.
The 1977 Nigeria Tax System, which introduced withholding tax as an advance payment of income tax on specified transactions, aimed to provide regular revenue flow for the government and curb tax evasion. However, this system posed several challenges, particularly for farmers and Small and Medium Enterprises (SMEs).
New Withholding Tax Policy.
Ayodele highlighted that the new withholding tax policy addresses the heavy burden imposed by the previous system on these groups. Key issues of the old regime included ambiguities about compliance requirements, eligible transactions, applicable rates, timing of remittance obligations, and difficulties in obtaining refunds for excess withholding tax. The structure of the old regime promoted tax inequity and added to the cost of doing business.
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Key Changes in the New Policy.
The new withholding tax policy, approved by President Tinubu, will be published in the official gazette in the coming days. The key changes include:
- Exemption of Small Businesses: Small businesses are now exempt from Withholding Tax compliance.
- Reduced Rates: Businesses with low margins will benefit from reduced withholding tax rates.
- Exemptions for Manufacturers and Producers: Farmers and other manufacturers are exempt from withholding tax.
- Measures to Curb Evasion: Enhanced measures to minimize tax avoidance and streamline the process of obtaining credit and utilizing tax deducted at source.
- Reflecting Emerging Issues: The policy adopts global best practices, addresses emerging issues, and provides clarity on the timing of deductions and definitions of key terms.
These reforms aim to ease the cost of compliance for taxpayers, improve the business environment, and promote tax equity.
The approval of the new withholding tax policy marks a significant step towards a more equitable and efficient tax system in Nigeria. By addressing the shortcomings of the 1977 Nigeria Tax System, the new policy aims to create a more favorable environment for businesses, particularly SMEs and manufacturers.
