The Federal Government has approved a new withholding tax regime, exempting small businesses, manufacturers, and farmers from paying withholding tax.
According to Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, the previous withholding tax system, introduced in 1978, had several challenges, including ambiguity, inequity, and straining the working capital of businesses with low margins.
“Withholding tax was introduced to serve as an advance payment of income tax on specified transactions,” Oyedele explained.
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“However, as the regime expanded, ambiguities and complications arose, burdening SMEs with excessive compliance and straining low-margin businesses’ working capital.”
The new regime, approved by President Bola Tinubu, introduces key changes, including reduced rates for businesses with low margins, measures to curb evasion and tax avoidance, and clarity on the timing of deductions and key terms.
“This new regime will ease the tax burden on small businesses, manufacturers, and farmers, and encourage economic growth,” Oyedele said. “It’s a significant step in our ongoing fiscal policy and tax reforms.”
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Recall that withholding tax is a method of collecting income tax in advance, deducted at rates ranging from 5% to 10% based on the transaction. The penalty for late filing is N25,000 for the first month and N5,000 for each subsequent month of non-compliance.
This approval is the second of five planned executive orders aimed at reducing inflation and growing tax revenue.
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