Tinubu directs major changes in new tax policy

President Bola Tinubu has approved a significant reform of Nigeria’s tax system, which introduces a new withholding tax policy that replaces the antiquated 1977 framework.

This announcement was made on Tuesday by Taiwo Ayodele, the Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms.

Ayodele explained that the new withholding tax policy has alleviated the significant burden imposed by the previous policy on farmers and Small and Medium Enterprises (SMEs).

“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 said.

He noted that the overall structure of the withholding tax regime promoted tax inequity.

Ayodele also revealed that the new withholding tax regime document approved by Tinubu would be published in the official gazette in few days.

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.”

Ayodele outlined additional reforms in the new policy, including measures to combat tax evasion and avoidance, streamlined credit procedures, updates to reflect global standards, and enhanced clarity on tax deductions and terminology.