By Joke Kujenya
PRESIDENT BOLA Tinubu has approved a revised withholding tax policy, replacing the outdated system established in 1977.
Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms (PCFPTR), announced the new policy on Tuesday, highlighting its aim to reduce the financial strain on farmers and Small and Medium Enterprises (SMEs).
The new policy introduces significant reforms to address the burdens of the old system.
Small businesses will now be exempt from withholding tax compliance, relieving them of both administrative and financial challenges.
Businesses with narrow profit margins will benefit from reduced withholding tax rates, improving their cash flow and operational efficiency.
The policy also grants exemptions to producers, particularly farmers, to support growth and sustainability in these vital sectors.
Oyedele explained that the new policy also tackles long-standing issues by introducing specific provisions that promote a more equitable and efficient tax system.
The updated regulations streamline the process for obtaining credit and utilizing tax deductions, making it more accessible for businesses.
The policy incorporates measures to enhance compliance and reduce opportunities for tax evasion and avoidance.
By providing clear guidelines on deduction timing and definitions of key terms, it eliminates previous ambiguities.
Under the old regime, businesses faced ambiguities regarding compliance, eligible transactions, applicable rates, and remittance timing, creating excessive compliance burdens and straining the working capital of low-margin businesses.
The system’s complexity led to unintended consequences and increased costs for businesses.
Obtaining refunds for excess withholding tax was difficult, causing further financial strain.
The lack of an exemption threshold made compliance costs uneconomical and increased enforcement costs for tax authorities.
The overall structure of the old regime promoted tax inequity and failed to address emerging issues effectively.
The new withholding tax policy promises to bring clarity and relief to Nigerian businesses as relevant authorities will publish the formal regulations in the official gazette shortly, providing detailed compliance guidelines.
Oloyede adds that this reform marks a significant step in Nigeria’s ongoing fiscal policy and tax reforms, demonstrating President Tinubu’s commitment to fostering a more conducive environment for business growth.
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