Federal Government Approves Exemption of Small Businesses, Manufacturers, and Farmers from Withholding Tax
In a bid to alleviate the tax burden on businesses, the Federal Government has approved the exemption of small businesses, manufacturers, and farmers from paying withholding tax.
This move is part of broader reforms aimed at enhancing the country’s fiscal policy and tax regime.
The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, announced the approval via his official handle on Tuesday morning.
President Bola Tinubu has sanctioned the new withholding tax regime, which is expected to be formally gazetted in the coming days.
Oyedele highlighted that the previous withholding tax system, introduced in 1978, had become burdensome due to ambiguities and complexities arising from its expansion to cover more transactions.
This has particularly strained the working capital of businesses with low margins and led to multiple tax obligations.
“Withholding Tax is a method of collecting Income Tax in advance, deducted at rates ranging from 5 per cent to 10 per cent based on the transaction,” Oyedele explained. He emphasized that the new regime aims to simplify compliance and reduce the burden on small and low-margin businesses.
Key changes introduced under the rewritten withholding tax regime include reduced rates for businesses with low profit margins, measures to curb tax evasion and avoidance, and clarity on the timing of deductions and definitions of key terms.
“As part of ongoing fiscal policy and tax reforms, the exemption of small businesses from Withholding Tax compliance and reduced rates for low-margin businesses are significant steps,” Oyedele stated.
He further noted that the reforms are aligned with global best practices and are aimed at fostering ease of credit access and utilization of tax deductions at source.
