FG Grants Tax Reprieve to Farmers, SMEs, Manufacturers

President Bola Tinubu 

Relief for Farmers, SMEs, Manufacturers as FG Waives Withholding Tax

FG exempts manufacturers, SMEs, and farmers from having to pay withholding tax.

FG exempts manufacturers, SMEs, and farmers from withholding tax, reducing tax burden on small enterprises. New regime includes lower rates, anti-tax evasion measures, and clarifies key terms. Part of ongoing fiscal policy and tax reforms to reduce inflation and increase revenue.

To lessen the tax burden on small enterprises, manufacturers, and farmers, the federal government has chosen to exclude these industries from paying withholding tax.

It has also made substantial adjustments to the current tax structure, decreasing rates for companies with narrow profit margins and putting in place safeguards against tax cheating.

President Bola Tinubu has approved the new withholding tax regime, according to Taiwo Oyedele, the Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, who made the announcement on his official X account on Tuesday, July 2. In the upcoming days, it is anticipated that the official gazette will be signed.

He clarified that there were a number of issues with the prior withholding tax system, which was implemented in 1978. These included unfairness, a long list of various taxes, ambiguity brought about by the rise in covered transactions, and the burden on low-margin companies' operating capital.

Withholding tax is a way to collect income tax upfront; depending on the type of transaction, deductions can range from 5 to 10 percent. The deadline for filing returns is the 21st of the next month. Late filing penalties are N25,000 for the first month of non-compliance and N5,000 for each additional month of non-compliance.

The tax expert also emphasized that the updated withholding tax regime has several significant adjustments, including lower rates for companies with thin profit margins, steps to prevent tax evasion and avoidance, exemptions for small enterprises, clarification on the timing of deductions, and exact definitions of important terminology.

He said, “Withholding tax was introduced into the Nigeria tax system in 1977 to serve as an advance payment of income tax on specified transactions.

“As the regime expanded over time to cover more transactions, various ambiguities and complications crept in. This resulted in many businesses, especially SMEs, being exposed to excessive burden of compliance and a strain on the working capital of low- margin businesses.

“As part of the ongoing fiscal policy and tax reforms, a new withholding tax regime has been approved. The key changes introduced are to address the identified challenges and specifically include the exemption of small businesses from Withholding Tax compliance and reduced rates for businesses with low margins.

“Ease of obtaining credit and utilization 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.”

The second of five executive directives intended to lower inflation and raise tax revenue was recently approved.