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Tax Overhaul: FG To Exempt SMEs, Farmers From Paying Withholding Tax

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The Federal Government has approved a comprehensive overhaul of its withholding tax regime.

In the new regime, small businesses, some manufacturers and farmers will be exempted from paying withholding tax.

The reform, set to be officially gazetted in the coming days, promises significant changes to address longstanding challenges faced by businesses across the country.

“The approved tax regulation will be officially published in the gazette shortly,” Oyedele confirmed, indicating that stakeholders should prepare for the implementation of the new provisions.

Withholding tax, introduced in Nigeria in 1977, was initially intended to ensure a steady flow of revenue for the government while curbing tax evasion.

Over the decades, however, the regime expanded to cover a wide array of transactions, leading to complexities and ambiguities that burdened businesses, particularly small and medium enterprises (SMEs) and those with narrow profit margins.

Oyedele (second from right) at the NESG event in Abuja, 2022.

Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, highlighted the critical issues that the new regime aims to rectify in a post on X.com on Monday.

He said, “The previous withholding tax system created ambiguities, multiple tax burdens, and challenges in obtaining refunds, all of which stifled economic growth and fairness.

“This withholding tax system marks a significant step in our ongoing fiscal reforms.

“It not only streamlines the process of obtaining credit and utilizing taxes deducted at source but also aligns with global best practices and addresses emerging issues in tax administration.”

The approved reforms include exemptions for small businesses from withholding tax compliance, reduced rates for entities with low profit margins, and specific exemptions for manufacturers and producers such as farmers.

Oyedele listed the key changes introduced as:

1. Exemption of small businesses from Withholding Tax compliance.

2. Reduced rates for businesses with low margins.

3. Exemptions for manufacturers and producers such as farmers.

4. Measures to curb evasion and minimise tax avoidance.

5. Ease of obtaining credit and utilisation of tax deducted at source

6. Changes to reflect emerging issues and adopt global best practices.

7. Clarity on the timing of deduction and definition of key terms.

According to Oyedele, the changes are designed to alleviate the compliance burden on vulnerable sectors of the economy and encourage reinvestment of capital into business operations.

“In addition to easing compliance, the reforms also enhance clarity on deduction timing and redefine key terms,” noted Oyedele, underscoring the government’s commitment to adopting global best practices and addressing contemporary issues in tax administration.

The revised regime is expected to streamline operations for businesses across Nigeria, allowing for easier credit utilization of taxes deducted at source and providing a more equitable tax framework.

Measures to curb evasion and avoidance are also integrated into the new system to ensure that tax revenues are collected efficiently without unduly burdening compliant businesses.

Analysts suggest that while challenges may persist during the implementation phase, the long-term benefits of a more business-friendly tax environment are expected to outweigh initial adjustments.

Nigeria’s revenue collection in 2023 amounted to N12.37 trillion, with expectations to reach N19.4 trillion by the end of 2024, reflecting the government’s proactive approach to bolstering financial resources amidst fiscal challenges.

Concurrently, the country’s total debt profile rose to N121.67 trillion as reported by the Debt Management Office, underscoring the importance of efficient revenue management and tax reform initiatives.

Social Media Reactions

Genevieve Mbama @Gviev: Well done to the Tax & Fiscal reform committee. This is a major one for sectors of the economy that drive productive base and growth. Finally SMEs find reprieve because it’s been a menace.

Bolaji @bolsaid: How’s small business defined here? Item 2: What’s the difference between small business and businesses with low margins? Item 3: Exemption of manufacturers and producers, hmm, this manufacturers clause seems ambiguous.

Oluwaseun @AkOluwa: There are no tax incentives for employees who pay personal income tax. All incentives are targeted at companies, which is great but more could be done. People who pay personal income tax should get rebates or some refund to improve their purchasing power.

oladiti olawale @oladitiolawale2:

This is a step in the right direction. It has high chances of succeeding with taxpayers at the focal point. Please ensure this is gazetted in timely manner for ease of reference for taxpayers. Thanks @taiwoyedele.

SERAPH @SegunSeraph:

Exemption for manufacturers and producers such as farmers should be simplified further because Nigerian manufacturers know how to hide under this type of policy to evade tax. They will claim they are into farming by acquiring one small farm.

ADEWALE @Wale_A3: I am listening to you on @channelstv this morning and these tax issues become quite clearer to me. One can only hope that the govt will implement all these brilliant ideas that you have shared. Nigeria can work if those in power choose to do the right thing.

NewDawn Africa @africa_newdawn: There should be a national definition, categorization and classification of Small, Medium, semi Big and Big Companies in Nigeria as part of Ease of Doing Business in Nigeria. Thank you.

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