The Federal Government of Nigeria has announced a significant reform in its tax policy, exempting farmers, small businesses, and manufacturers from withholding tax.
This development is part of the broader fiscal policy and tax reforms aimed at creating a more supportive environment for these sectors.
The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, revealed the new policy changes on his X (formerly Twitter) handle.
Oyedele stated, “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; reduced rates for businesses with low margins; exemptions for manufacturers and producers such as farmers; measures to curb evasion and minimize tax avoidance and the ease of obtaining credit and utilization of tax deducted at source.”
The new policy is expected to bring relief to small business owners and manufacturers who have long been burdened by withholding tax compliance. By reducing the rates for businesses with low margins and exempting key sectors like agriculture and manufacturing, the government aims to stimulate economic growth and encourage business expansion.
Oyedele further explained that the reforms also include measures to curb tax evasion and enhance the ease of obtaining and utilizing tax credits deducted at source.
Additionally, the changes aim to reflect emerging issues, adopt global best practices, and provide clarity on the timing of deductions and the definition of key terms.
“The approved regulation is expected to be published in the official gazette in the coming days,” Oyedele added, highlighting the imminent official adoption of the new policy.
Withholding tax, which was introduced in Nigeria in 1977, was originally designed to serve as an advance payment of tax on specified transactions. It aimed to provide the government with a steady revenue flow and to curb tax evasion. However, over the years, it has become a significant compliance burden for small businesses and manufacturers.
Oyedele, a tax expert, noted the historical context, stating, “It was designed to provide the government with regular revenue flow and to serve as a means of curbing tax evasion.”
The exemption of farmers, small businesses, and manufacturers from withholding tax is seen as a positive step towards fostering a more business-friendly environment in Nigeria. It is expected to provide much-needed financial relief and encourage investment and growth in these critical sectors.
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