No Withholding Tax for small businesses, Nigerian govt says

The Nigerian government announced Tuesday that small businesses and farmers will be exempt from Withholding Tax (WHT) under a newly approved reform package.

Withholding Tax acts as an advance payment on income tax, deducted at a rate between 5% and 10% depending on the transaction. Previously, even small businesses had to comply with this system, adding to their administrative burden and straining their limited resources.

Taiwo Oyedele, chairman of the presidential committee on fiscal policy and tax reforms, said on social media that the newly approved withholding tax regulation will be published officially soon.

Why the Change?

The Nigerian government is aiming to address several issues with the current Withholding Tax system. Oyedele outlined some of the key problems:

• Excessive burden: The system placed a significant compliance burden on small businesses, diverting their time and resources from core activities.
• Strained working capital: Forcing small businesses to pay Withholding Tax upfront could limit their ability to invest in growth.
• Multiple taxes: WHT was seen as an additional tax on top of other existing levies, increasing the overall cost of doing business.
• Refund challenges: Obtaining refunds for excess Withholding Tax was often cumbersome and time-consuming.
• Outdated structure: The existing system didn’t address emerging business models and lacked clarity on key terms and procedures.

A Broader Reform

The exemption for small businesses is just one part of a larger reform package. The government is aiming to simplify the Withholding Tax system for all businesses. This includes:

• Reduced rates: Businesses with low margins will benefit from lower Withholding Tax rates.
• Exemption for manufacturers: Manufacturers and producers, including farmers, will also be exempt from Withholding Tax.
• Improved clarity: The regulations will be updated to clearly define key terms and procedures, making compliance easier.
• Global best practices: The reforms will incorporate global best practices in Withholding Tax administration.

These changes are expected to create a more business-friendly environment in Nigeria, particularly for small businesses and the agricultural sector.

By reducing their tax burden and simplifying compliance, the government hopes to stimulate economic growth and job creation.