President Bola Tinubu has signed off on a landmark reform of Nigeria’s tax system, introducing a new withholding tax policy that updates the outdated 1977 framework.
Taiwo Ayodele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, made this announcement on Tuesday.
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.
