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Simplified and Business-Friendly Withholding Tax Regime Approved in Nigeria

Boom RadioNG | July 2, 2024

Background: Withholding tax was introduced in Nigeria in 1977 to serve as an advance payment of income tax on specified transactions. It aimed to provide the government with a steady revenue flow and curb tax evasion.

Challenges: Over the years, the withholding tax regime expanded, leading to several issues, especially for small and medium-sized enterprises (SMEs). The main challenges included:

  1. Ambiguities: Confusion about who needs to comply, which transactions are eligible, applicable rates, and remittance timing.
  2. Multiple Taxes: Treating withholding tax as a separate tax added to the overall tax burden.
  3. Refund Difficulties: Complications in obtaining refunds for excess withholding tax paid.
  4. No Exemption Threshold: Lack of exemptions made compliance uneconomical for both taxpayers and authorities.
  5. Outdated Provisions: Emerging issues were not addressed, leading to tax inequity.

Taiwo Oyedele
Chairman, Presidential Committee on Fiscal Policy and Tax Reforms

Key Changes: The new withholding tax regime aims to address these challenges through the following changes:

  1. Exemptions for Small Businesses: Small businesses are now exempt from withholding tax compliance, reducing their tax burden.
  2. Reduced Rates: Lower rates are introduced for businesses with low margins.
  3. Exemptions for Manufacturers: Farmers and other producers are exempt from withholding tax.
  4. Anti-Evasion Measures: New measures to curb tax evasion and minimize avoidance.
  5. Credit Utilization: Easier processes for obtaining and utilizing tax credits.
  6. Modernization: Updates to reflect emerging issues and adopt global best practices.
  7. Clarity: Clear definitions and timing of deductions to reduce ambiguities.

Expected Outcome: The new regulations aim to make the withholding tax system more business-friendly, particularly for SMEs and low-margin businesses, while ensuring better compliance and reducing administrative burdens.


These changes are part of Nigeria’s broader fiscal policy and tax reforms to promote fairness and efficiency in the tax system.

Written by Boom RadioNG


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