A move to enhance economic growth and ease the tax burdens affecting small businesses and the manufacturing sector, the Federal Government has unveiled a New Tax Regulation which is “Deduction of Tax at Source (Withholding) Regulations, 2024.”
It was signed by the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, these new regulations aim to simplify tax deduction processes and promote compliance among businesses across varying sectors.
The newly introduced regulations is set to standardize the methods through which taxes are deducted at source from payments made to taxable entities. The initiative is designed to mitigate the complexities currently associated with tax compliance, thereby fostering a more business-friendly environment.
By focusing on sectors that have historically faced challenges in tax collection and clarity, specifically under the Capital Gains Tax Act, Companies Income Tax Act, Petroleum Profits Tax Act, and Personal Income Tax Act. The government intends to align domestic practices with global standards and best practices.
The regulations is said to be particularly timely, as they aim to address rampant tax evasion and discrepancies between corporate and non-corporate tax structures. In this light, the new measures reflect a commitment to establishing a fair and transparent tax system that incentivizes compliance and reduces the informal economy’s impact.
Recognizing the vital role of small businesses in the economy, the new regulations explicitly offer tax exemptions to support these enterprises, especially those operating in sectors characterized by low-profit margins. By alleviating the tax burden on small businesses, the government envisions creating an ecosystem where entrepreneurship can flourish.
A notable feature of these regulations is the provision for small companies with a turnover of N2 million or less in a calendar month. Such businesses, provided they possess a valid Tax Identification Number (TIN), will be exempt from the mandatory deduction of taxes at source. This provision aims to level the playing field, allowing small operations to invest resources back into their businesses rather than being encumbered by tax obligations.
Clarity on Deductions and Compliance
The Deduction of Tax at Source regulations delineate clear guidelines regarding which transactions and sectors are eligible for deductions. Emphasizing ease of compliance, the regulations specify the processes involved in making such deductions.
Also, businesses that lack a TIN will face a doubled deduction rate on eligible transactions, a measure designed to encourage registration and compliance among all business entities.
The regulations further stipulate that various public entities, including government ministries, statutory bodies, and public authorities, are mandated to deduct taxes at source for applicable transactions. By streamlining the responsibilities of these entities, the government aims to create a more stringent and efficient tax collection environment.
Treating Tax Deductions as Advance Payments
A significant aspect of the new regulations is the clarification that tax deducted at source will not incur additional costs for businesses. Instead, these deductions will be considered advance payments toward the final tax liability of the supplier. This approach intends to alleviate financial pressure on businesses while ensuring they fulfil their tax obligations.
Furthermore, businesses must adhere to stringent reporting requirements. Failure to remit deducted taxes or comply with the deduction mandates will result in serious penalties, reinforcing the government’s commitment to enforcing tax compliance. The penalty structure outlined in the regulations aligns with existing legislation under the Federal Inland Revenue Service (Establishment) Act and the Personal Income Tax Act, thus ensuring consistency in enforcement and accountability.
Moreover, the regulations clarify exemptions for specific transactions. These exemptions cover various compensating payments under registered securities lending transactions, as well as products manufactured by the supplier and particular telephone charges. Such provisions highlight the government’s comprehensive approach to creating a tax environment that recognizes the distinct needs of different sectors.
Scheduled to take effect on January 1, 2025, the regulations contain provisions for early application from July 1, 2024, for certain cases. The Federal Inland Revenue Service (FIRS) is tasked with producing further operational guidelines to ensure that the implementation of these regulations proceeds smoothly and effectively, contingent upon the approval of the Finance Ministry.
a Modern Tax System
The introduction of the Deduction of Tax at Source (Withholding) Regulations, 2024, underscores the government’s commitment to modernizing Nigeria’s tax system. By reducing inefficiencies and promoting a culture of compliance across various sectors, the government aims to create a balanced economic environment conducive to growth.
These changes signal a proactive approach to taxation that not only satisfies regulatory needs but also fosters a supportive climate for businesses to thrive.
With the goal of improving the overall efficiency of tax administration, the Federal Government’s latest regulatory efforts represent a crucial step towards promoting sustainable economic development and enhancing the competitive edge of Nigeria’s manufacturing and entrepreneurial landscapes.
Join our Channel...