The Presidential Committee on Fiscal Policy and Tax Reforms, chaired by Taiwo Oyedele, has proposed exempting manufacturers and farmers from paying withholding tax to reduce the tax burden on businesses. This proposal was disclosed during a public consultation workshop on the National Tax Policy held in Lagos.
Simplifying Tax Compliance
Taiwo Oyedele emphasized the complexity of withholding tax compliance in Nigeria, stating: “We set out the objectives of what we want to do with withholding tax regulation. One of them is to simplify the tax. We want to reduce the burden on businesses, promote competitiveness, equity, ease of compliance and tax avoidance, detect tax evasion, and reflect on what is happening globally.”
The proposal includes:
- Exempting small businesses with a turnover of less than N50 million from withholding tax.
- Reducing the withholding tax rate for real businesses (producers of goods and services) to as low as 2% due to their small profit margins.
- Exempting manufacturers and their suppliers, such as farmers, from withholding tax.
Additional Provisions
Mr. Oyedele also noted that businesses not registered with the Corporate Affairs Commission (CAC) would face a deduction of 200% of the normal tax rate as an incentive to register. This measure aims to improve compliance and formalize more businesses.
Customs Duties Exchange Rate
The committee has proposed pegging the customs duties exchange rate to the exchange rate in the 2024 budget, set at N800/$. Oyedele pointed out that frequent changes in the customs duties rate hinder long-term planning and harm business operations. A fixed exchange rate for customs duties is suggested to provide stability for the remainder of the year.
Background on Withholding Tax
According to the Federal Inland Revenue Service (FIRS), Withholding Tax (WHT) collects income tax in advance, with rates ranging from 5% to 10% depending on the transaction. Returns are due by the 21st of each succeeding month. Penalties for late filing include N25,000 for the first month and N5,000 for each subsequent month of non-compliance.
The Manufacturers Association of Nigeria has expressed concerns about the impact of multiple taxation on the sector, stating that members pay up to 60 different taxes and levies. This tax burden negatively affects productivity and competitiveness.
