JUST IN: Tinubu Overhauls 1977 Tax System, Introduces New Policy

JUST IN: Tinubu Overhauls 1977 Tax System, Introduces New Policy

President Bola Tinubu has recently given the green light to a fresh withholding tax policy in Nigeria, effectively amending the longstanding 1977 tax system in the country.

This decision was disclosed by Taiwo Ayodele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, according to multiple reports.

The adjustment aims to alleviate the substantial burden previously shouldered by farmers and Small and Medium Enterprises due to the former policy.

“Withholding tax was introduced into the Nigeria tax system in 1977 to serve as an advance payment of income tax on specified transactions. It was designed to provide the government with regular revenue flow and to serve as a means of curbing tax evasion,” Taiwo gave as background.

He listed the challenges of the old withholding tax regime to include, “Ambiguities regarding persons required to comply, eligible transactions, applicable rates, and timing of the obligation for remittance, among others.

 “Treatment of the deduction as a separate tax, thereby adding to the list of multiple taxes and cost of doing business. Challenges regarding obtaining refunds for excess withholding tax.

“Lack of exemption threshold making the cost of compliance by taxpayers and cost of enforcement by the tax authority uneconomical. Some emerging and contemporary issues are not properly addressed,” the Tax Reform Chairman added.

Ayodele noted that the previous withholding tax structure perpetuated tax inequity, prompting the introduction of a revised approach.

The new withholding tax regime, endorsed by Tinubu, is set to be officially published in the gazette within a short timeframe.

He identified the key changes made to include: “Exemption of small businesses from Withholding Tax compliance. Reduced rates for businesses with low margins. Exemptions for manufacturers and producers such as farmers.”

He added that measures to curb evasion and minimise tax avoidance, ease of obtaining credit and utilisation of tax deducted at source, changes to reflect emerging issues and adopt global best practices and clarity on the timing of deduction and definition of key terms, as other reforms in the new withholding tax policy.