The Federal Government of Nigeria introduced the “Deduction of Tax at Source (Withholding) Regulations, 2024,” via official gazette on 2 October 2024. This regulatory overhaul, which comes into effect on 1 January 2025, replaces the longstanding withholding tax (WHT) framework and signals the Federal Inland Revenue Service’s (FIRS) intent to modernise the country’s tax regime. However, beneath the surface, the new regulations raise pressing questions around Nigeria’s approach to tax equity, bureaucratic burden, and the policy’s real impact on an economy in the throes of crisis.
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A transition period: Flexibility or token gesture?
The FIRS has introduced a 90-day transition period, in keeping with the 2017 National Tax Policy, ostensibly to ease the adjustment for businesses. However, this short timeline places notable strain on small and medium-sized enterprises (SMEs), which often lack resources to quickly reconfigure systems and adapt to significant regulatory changes. While the transition period may suit large corporations with robust tax compliance mechanisms, it risks alienating the very SMEs that are critical to Nigeria’s economic fabric.
The tax exemption for items such as telephone charges, internet data, and airline tickets aims to address previously ambiguous areas of taxation. While these adjustments add clarity, they beg the question: Why were such commonplace transactions left in legal limbo for so long? This delay reflects a broader pattern of incremental, piecemeal reforms that undermine the credibility of Nigeria’s tax framework and deter investor confidence.
Legal limbo for early adopters: A sign of bureaucratic rigidity?
FIRS’s firm stance against early adoption of the new WHT rates presents another critical complication. Taxpayers who proactively applied these rates before the official start date—including some as early as July 2024—may now face the costly prospect of legal recourse to recover losses from an arguably ambiguous policy. While FIRS claims the restriction preserves regulatory order, it inadvertently sends a discouraging signal to businesses inclined toward proactive compliance. Instead of alleviating bureaucratic barriers, the new regulations may well serve to reinforce them.
An administrative burden under the guise of simplification?
The FIRS purports that the 2024 Regulations will streamline compliance, but the increased administrative complexity suggests otherwise. Tax experts argue that Nigeria’s tax policies remain notoriously complex, with one calling the country’s tax policy environment “a maze of overlapping directives.” The administrative cost to businesses—particularly in terms of adjusting software, retraining staff, and auditing processes—may ultimately outweigh the purported benefits of simplification, potentially contributing to inflationary pressures as businesses pass these costs onto consumers.
Timing amid economic strain: Adding pressure to already overburdened businesses
The introduction of the 2024 regulations coincides with a time of severe economic strain. Nigerian businesses face the challenges of escalating inflation, unstable foreign exchange rates, and borrowing costs rendered prohibitive by ongoing economic reforms under President Bola Tinubu, including the controversial removal of fuel subsidies and the floating of the naira. By increasing compliance costs, the new regulations add to the load on businesses already stretched thin by economic headwinds, casting doubt on FIRS’s claim of fostering a more business-friendly tax environment.
Missed opportunities: Addressing Nigeria’s structural tax inequities
While the 2024 regulations mark an incremental step towards modernisation, they also highlight missed opportunities to address Nigeria’s fundamental tax challenges. A progressive tax structure, with greater emphasis on easing the burden for SMEs, would serve not only to stimulate growth but also promote a fairer distribution of the tax load. Without targeted measures to address these structural issues, Nigeria’s tax regime risks perpetuating an environment where the tax burden falls disproportionately on smaller players, stifling the very engines of economic resilience and job creation.
Read also: Tinubu’s tax gamble: A path to prosperity or peril for Nigeria?
Conclusion: A new regulation, but unanswered questions linger
The Deduction of Tax at Source (Withholding) Regulations, 2024, signals a regulatory shift, but one that appears insufficiently attuned to Nigeria’s broader fiscal and economic complexities. While it promises to streamline compliance, the reality is likely to be far more complicated, especially for smaller businesses grappling with rising costs and regulatory uncertainty. For Nigeria’s tax framework to truly support economic growth, policymakers will need to address systemic inequities and adopt reforms that prioritise economic inclusivity and long-term resilience.
Abayomi Fashina (Fash): Tax and Risk Professional | BSc, MSc, AAT, ACA
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