Federal Government rolls out fresh withholding tax regulations

The Federal Government has rolled out fresh deduction tax at source (withholding) regulations to boost its revenue drive, a document obtained by The Guardian has shown.

Tagged: ‘Deduction of Tax at Source (withholding) Regulations 2024’, it took effect from Monday, July 1, 2024.

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 created to provide the government with regular revenue flow and to serve as a means of curbing tax evasion.

In his notes on the new regulations, Chairman, the Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele, who defended the new path, said that withholding tax has led to many businesses, especially SMEs being exposed to excessive burden of compliance and a strain on the working capital of low-margin businesses.

Key changes the new regulations seek to achieve are exemption of small businesses from Withholding Tax compliance; reduction rates for businesses with low margins; exemptions for manufacturers and producers such as farmers; measures to curb evasion and minimise tax avoidance; ease of obtaining credit and utilisation of tax deducted at source; changes to reflect emerging issues and adopt global best practices and provide clarity on the timing of deduction and definition of key terms.

He hinted that the regulation is expected to be published in the official gazette very soon.

The withholding tax has been bogged by ambiguities regarding persons required to comply, eligible transactions, applicable rates, and timing of the obligation for remittance, among others.

There is also the treatment of the deduction as a separate tax, thereby adding to the list of multiple taxes and costs of doing business.

Many businesses have complained about failure to get refunds for excess withholding tax.

There was an absence of an exemption threshold making the cost of compliance by taxpayers and the cost of enforcement by the tax authority uneconomical.

Businesses believed that the overall structure of the withholding tax regime promoted tax inequity.

Therefore, the new regulations set out the rules for the deduction of tax from payments to taxable persons under the Capital Gains Tax Act, the Companies Income Tax Act, the Petroleum Profits Tax Act, and the Personal Income Tax Act in respect of specified transactions.

The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, signed the regulations.

Under the new rule, tax to be deducted at source includes the eligible transactions and the applicable rates at which deductions shall be made at source are as specified in the “First Schedule” to these Regulations; reduced rates as specified under a treaty between Nigeria and any other country for the avoidance of double taxation shall apply to an eligible recipient who is resident in a treaty country to the extent that such reduced rates are contained in the relevant treaty or protocol duly ratified by the National Assembly.

“In the case of supply of goods, rendering of service or any eligible transaction involving non-passive income, the amount to be deducted at source shall be twice the rate specified in the Schedule where the Recipient has no Tax Identification Number,” it added.

In his notes, the minister stressed that the regulations complement the applicable statutory provisions and replace all prior rules in respect of deductions at source other than Pay-As-You-Earn tax.

He added: “It simplifies areas of complexities, and reduces the rates of deduction for industries with low margins. The Regulations are expected to promote the ease of tax compliance and administration, reduce arbitrage between corporate and non-corporate business structures, reflect emerging issues and adopt best global practices.”