Nigeria’s new Withholding Tax regime exempts farmers, manufacturers, others

The Federal Ministry of Finance has issued a new Withholding Tax (WHT) regime which exempts Nigeria’s farmers, manufacturers, small business owners and others.

A withholding tax is basically an advance and indirect source of taxation deducted at source from the invoices of the taxpayer.

“The following transactions are exempt from deductions at source; goods manufactured or materials produced by the person making the supply, imported goods where the transaction does not create a taxable presence in Nigeria for the foreign supplier, any payment in respect of income or profit which is exempt from tax, Insurance premium, others” according to statement by the ministry of finance.

Taiwo Oyedele, chairman, Presidential Fiscal Policy and Tax Reforms Committee had
during a workshop with Journalists last month said that the committee proposed exempting manufacturers and farmers from paying withholding tax to reduce the tax burden on businesses.

Read also: Nigeria’s Withholding Tax Reforms: Key Changes and Implications

According to the Federal Inland Revenue Service (FIRS), Withholding Tax (WHT) is a method for collecting Income Tax in advance, deducted at rates ranging from 5 percent to 10 percent based on the transaction. Returns are due by the 21st of the following month. The penalty for late filing is N25,000 for the first month and N5,000 for each subsequent month of non-compliance.

Other exemptions include Supply of Liquefied Petroleum Gas, Compressed Natural Gas, Premium Motor Spirits, Automotive Gas Oil, Low Pour Fuel Oil, Dual Purpose Kerose, and JET-A1.

As well as commission retained by a broker from monies collected on behalf of the principal in line with the industry norm for such transactions, and winnings from a game of chance or a reality show with contents designed exclusively to promote entrepreneurship, academics, technological or scientific innovation

The new regulations are aimed at providing clarity on the rules for the deduction of tax from payments made to taxable persons under these Acts, such as The Companies Income Tax Act (CITA), Capital Gains Tax Act (CGTA), Personal Income Tax Act (PITA), and Petroleum Profits Tax Act (PPTA).

The regulations address the reduced Withholding Tax (WHT) rates applicable to low-margin businesses, promote ease of tax compliance and administration, reduce arbitrage between corporate and noncorporate structures, reflect emerging issues and leverage global best practices.

The Regulations supplement the relevant statutory provisions and supersede all prior regulations concerning deductions at source, with the exception of the Pay-As-You-Earn tax.