President Tinubu Approves New Withholding Tax Policy
President Bola Tinubu has given the green light to a new withholding tax policy, updating the system in place since 1977. This significant change was announced by Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, on Tuesday.
Oyedele highlighted that the new policy relieves the heavy burden previously placed on farmers and small businesses. The old withholding tax, introduced in 1977, aimed to provide a steady revenue stream for the government and reduce tax evasion by acting as an advance payment on specific transactions.
However, the old system had numerous challenges. There was confusion about who needed to comply, which transactions were eligible, the applicable rates, and the timing for remittance. It also added to the complexity and cost of doing business by being treated as a separate tax, leading to multiple taxation issues. Additionally, obtaining refunds for excess withholding tax was difficult, and the lack of exemption thresholds made compliance costly and inefficient.
Oyedele pointed out that these issues promoted tax inequity, necessitating a reform. The new policy, which will be published in the official gazette soon, introduces several key changes:
- Exemption of small businesses from withholding tax compliance.
- Reduced rates for businesses with low profit margins.
- Exemptions for manufacturers and producers, including farmers.
- Measures to reduce tax evasion and simplify tax compliance.
- Easier access to tax credits and usage of tax deductions.
- Updates to address emerging issues and align with global best practices.
- Clear guidelines on the timing of deductions and definitions of key terms.
These reforms are designed to make the tax system more equitable and business-friendly while ensuring better compliance and efficiency.
