Company income tax rises by 151%

FG gazettes withholding tax 2024 regulations — Oyedele

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The Federal Government has published in the official gazette the Deduction of Tax at Source (Withholding Tax) Regulations, 2024.

The gazetting of the simplified and business-friendly withholding tax regime will relieve manufacturers and small businesses of the burden of multiple taxation and pave the way for a conducive business environment.

The Regulations grant a reduction in rates and full exemption from Withholding Tax to many businesses, including Small and Medium Enterprises (SMEs) with an annual turnover not exceeding N25 million.

The Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Mr. Taiwo Oyedele, who disclosed this on his X handle, pointed out that the commencement date of the new Regulations is 30th September 2024, while implementation begins on 1st January 2025, to allow for a minimum of 90 days’ notice required for tax changes in line with the 2017 National Tax Policy.

“However, there is a provision permitting the FIRS, with the approval of the Finance Minister, to issue guidelines for the implementation of the Regulations and, where appropriate, permit early application of the Regulations from 1st July 2024.

The essence of this provision is to enable persons who wish to adopt the Regulations early to do so, given that it generally provides relief to businesses rather than imposing a burden,” Mr. Oyedele explained.

Withholding tax was introduced into the Nigerian tax system in 1977 to serve as an advance payment of income tax on specified transactions.

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

Challenges arose as the regime expanded over time to cover more transactions, leading to various ambiguities and complications.

This resulted in many businesses, especially SMEs, being exposed to an excessive burden of compliance and a strain on the working capital of low-margin businesses.

Some other unintended consequences include ambiguities regarding the persons required to comply, eligible transactions, applicable rates, and the timing of the obligation for remittance, among others.

Others were the treatment of the deduction as a separate tax, thereby adding to the list of multiple taxes and the cost of doing business, challenges regarding obtaining refunds for excess withholding tax, and a lack of exemption thresholds, which made the cost of compliance for taxpayers and the cost of enforcement for the tax authority uneconomical.

Some emerging and contemporary issues are not properly addressed. The overall structure of the withholding tax regime promoted tax inequity.

As part of the ongoing fiscal policy and tax reforms, the key changes introduced aim to address the identified challenges and specifically include: exemption of small businesses from Withholding Tax compliance; reduced rates for businesses with low margins; exemptions for manufacturers and producers, such as farmers; measures to curb evasion and minimize tax avoidance; ease of obtaining credit and utilization of tax deducted at source; changes to reflect emerging issues and adopt global best practices; and clarity on the timing of deduction and the definition of key terms.


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