The Federal Government of Nigeria has announced significant changes to the tax regime, exempting small businesses, manufacturers, and farmers from paying withholding tax to alleviate the tax burden on these sectors.
The new policy also includes measures to reduce rates for businesses with low margins and introduces mechanisms to curb tax evasion.
Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, shared the updates on his official X handle, noting that President Bola Tinubu has approved the reforms. The official gazette detailing the new withholding tax regime is expected to be signed soon.
“The erstwhile withholding tax system introduced in 1978 faced challenges such as ambiguities and the strain on the working capital of businesses with low margins,” Oyedele explained. “This new regime aims to address these issues, providing relief and clarity.”
Withholding Tax, a method for collecting Income Tax in advance at rates between 5% and 10%, has historically placed a compliance burden on businesses, particularly those with lower profit margins. Under the new system, key changes include exemptions for small businesses, manufacturers, and producers like farmers, clearer guidelines on timing and deductions, and updated terms to align with global practices.
“As part of the ongoing fiscal policy and tax reforms, the new withholding tax regime specifically includes the exemption of small businesses and manufacturers from compliance, and reduced rates for businesses with low margins,” Oyedele stated. “These changes will ease the strain on SMEs and help reduce compliance burdens.”
The revised withholding tax rules are part of broader reforms aimed at reducing inflation and enhancing tax revenue. This latest approval marks the second of five planned executive orders targeting economic stabilization and growth.
“The updated regime not only provides clarity and relief for small enterprises but also incorporates measures to curb evasion and minimize tax avoidance,” Oyedele added, emphasizing the government’s commitment to fostering a more equitable and efficient tax system.
