FG Offers Tax Relief to GenCos, DisCos, and Others in Power Sector

FG exempts DisCos, GenCos, and others from having to pay withholding tax

Nigeria's federal government grants withholding tax exemption to GenCos, DisCos, and other electricity companies, easing tax compliance and revenue generation.

The federal government has exempted all electricity companies in Nigeria, including Generation and Distribution Companies (GenCos and DisCos), from paying withholding tax. This exemption is according to a recently signed amended Withholding Tax regulation paper by Finance Minister Wale Edun.

The amended regulation, effective July 1, 2024, was introduced by the Taiwo Oyedele-led Tax and Fiscal Policy Committee. According to the document, gas and electricity companies are classified under manufacturing and production, and therefore, are not subject to withholding tax.

Withholding Tax (WHT) is essentially a prepayment of income tax, withheld at rates ranging from 5 to 10 percent depending on the transaction, according to the Federal Inland Revenue Service (FIRS). Nigeria introduced Withholding Tax in 197 POSSIBILITY to streamline tax collection and enhance revenue generation.

However, Oyedele noted that while the tax system helps prevent tax fraud and provides a consistent income stream, it has become more complicated and onerous over time. He highlighted that the complexity has led to ambiguities around compliance, eligible transactions, applicable rates, and remittance timing.

The recently approved regime aims to address these issues and introduce several significant changes. As reported by MON DIARIES in July, the federal government has exempted small businesses, manufacturers, and farmers from paying withholding tax to reduce their tax burden. 

Additionally, measures have been introduced to prevent tax evasion, and rates have been reduced for companies with narrow profit margins, among other major changes to the current tax structure.