Nigeria’s New Withholding Tax Regulation Sets Global Standard, Analyst Says
Detailed Breakdown:
1. Introduction of New Withholding Tax Regulation
Dr. Titilayo Fowokan, an analyst, lauded Nigeria’s recently gazetted withholding tax policy, formally titled “The Deduction of Tax at Source (Withholding) Regulations, 2024.” She emphasized that the new regulation, effective from January 1, 2025, aligns with international best practices, streamlining tax processes and enhancing transparency in Nigeria’s tax landscape.
2. Enhanced Efficiency and Economic Transparency
Fowokan noted that the updated regulation aims to simplify tax procedures, especially for small and medium-sized enterprises (SMEs). It introduces reduced rates and full withholding tax exemptions for businesses with an annual turnover up to N25 million, facilitating ease of operations and boosting transparency in the informal sector.
3. Clear Guidelines for Foreign and Domestic Businesses
A significant aspect of the regulation is the distinction between Nigerian and foreign companies, ensuring both comply with applicable tax laws. It specifies unique requirements for resident and non-resident businesses and clarifies how withholding tax (WHT) applies to different types of transactions, helping firms navigate their tax obligations.
4. Support for Low-Income Businesses and Compliance Efforts
Fowokan emphasized that the regulation introduces provisions to protect low-margin businesses, with WHT rates as low as 2% for certain sectors. It also encourages taxpayer education, ensuring that businesses understand their responsibilities and compliance requirements under the new regime.
5. New Requirements for Withholding Agents
The regulation mandates withholding agents to differentiate between related-party and third-party transactions and complete specific forms verifying tax deductions. These additions are intended to support proper credit claims by vendors and prevent compliance discrepancies.
6. Withholding Tax as an Advance Income Tax
Fowokan clarified that withholding tax serves as an advance payment of income tax, not a separate tax. She cautioned that businesses without tax registration still bear tax responsibilities, potentially facing penalties for non-compliance.
Summary:
The 2024 withholding tax regulation reflects Nigeria’s commitment to enhancing business-friendly tax practices, creating a transparent and structured approach to compliance that aligns with international standards.
Detailed Breakdown:
1. Introduction of New Withholding Tax Regulation
Dr. Titilayo Fowokan, an analyst, lauded Nigeria’s recently gazetted withholding tax policy, formally titled “The Deduction of Tax at Source (Withholding) Regulations, 2024.” She emphasized that the new regulation, effective from January 1, 2025, aligns with international best practices, streamlining tax processes and enhancing transparency in Nigeria’s tax landscape.
2. Enhanced Efficiency and Economic Transparency
Fowokan noted that the updated regulation aims to simplify tax procedures, especially for small and medium-sized enterprises (SMEs). It introduces reduced rates and full withholding tax exemptions for businesses with an annual turnover up to N25 million, facilitating ease of operations and boosting transparency in the informal sector.
3. Clear Guidelines for Foreign and Domestic Businesses
A significant aspect of the regulation is the distinction between Nigerian and foreign companies, ensuring both comply with applicable tax laws. It specifies unique requirements for resident and non-resident businesses and clarifies how withholding tax (WHT) applies to different types of transactions, helping firms navigate their tax obligations.
4. Support for Low-Income Businesses and Compliance Efforts
Fowokan emphasized that the regulation introduces provisions to protect low-margin businesses, with WHT rates as low as 2% for certain sectors. It also encourages taxpayer education, ensuring that businesses understand their responsibilities and compliance requirements under the new regime.
5. New Requirements for Withholding Agents
The regulation mandates withholding agents to differentiate between related-party and third-party transactions and complete specific forms verifying tax deductions. These additions are intended to support proper credit claims by vendors and prevent compliance discrepancies.
6. Withholding Tax as an Advance Income Tax
Fowokan clarified that withholding tax serves as an advance payment of income tax, not a separate tax. She cautioned that businesses without tax registration still bear tax responsibilities, potentially facing penalties for non-compliance.
Summary:
The 2024 withholding tax regulation reflects Nigeria’s commitment to enhancing business-friendly tax practices, creating a transparent and structured approach to compliance that aligns with international standards.