FG Exempts Farmers, Manufacturers, MSMEs From Withholding Tax

The federal government has approved a new tax regime that exempts manufacturers and producers such as farmers and small businesses from withholding tax compliance. The government also reduced rates for businesses with low margins while also releasing new measures to curb evasion and minimise tax avoidance

According to the chairman of the Presidential tax reform committee, Taiwo Oyedele, the government has approved a new way of ease of obtaining credit and utilisation of tax deducted at source. He said the changes are made to reflect emerging issues and adopt global best practices. The new tax regime also deals with the issue of clarity on the timing of deduction and definition of key terms

“The approved regulation is expected to be published in the official gazette in the coming days,” Oyedele said yesterday in a tweet on his verified X account. The move is part of the ongoing fiscal policy and tax reform of the present administration.

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.

However, the fiscal policy measure has been 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.

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Other unintended consequences 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 and challenges regarding obtaining refunds for excess withholding tax.

Other consequences are lack of exemption threshold making the cost of compliance by taxpayers and cost of enforcement by the tax authority uneconomical; the fact that some emerging and contemporary issues are not properly addressed; and the overall structure of the withholding tax regime promoted tax inequity.