The Federal Government’s revenue profile is set to rise significantly with the introduction of a new withholding tax policy, experts have assured.
Financial and economic pundits expressed optimism over the weekend that the policy will not only enhance tax revenue but also encourage greater tax compliance.
Chairman of the Presidential Tax Reform Committee, Mr. Taiwo Oyedele, recently revealed that the new withholding tax administration template, soon to be implemented, will simplify the methodology and improve tax administration, allowing citizens to reap substantial benefits.
The committee aims to reduce the burden on taxpayers by increasing exemptions or zero-rated taxes for critical sectors such as education, healthcare, transportation, agriculture, and food.
Victor Athe, Partner at Stransact Chartered Accountants and Audit, an RSM correspondent firm in Nigeria, noted that improved compliance with withholding tax should bring more taxpayers into the tax net. “Increased withholding tax payment can potentially improve the collection of major taxes like corporate, personal income tax, and VAT,” he stated.
One of the amendments in the new regulations is the imposition of a double withholding tax rate on non-registered entities issuing sales invoices, driving businesses currently outside the tax net to register for tax compliance to avoid cash-flow implications.
Athe also highlighted that the new regulations require entities making tax deductions from suppliers’ invoices to issue receipts containing all relevant information, which suppliers can use to claim income tax credit from the relevant tax authority. This ensures that the federal government can collect more revenue, especially from those who violate tax laws.
Victor Ndukauba, Group Deputy Managing Director of Afrinvest West Africa Limited, commended the committee’s efforts to simplify tax laws and collections. He noted that reducing the number of taxes and easing compliance burdens, especially for small businesses, were key objectives of the reform.
Peter Sunday Adebola, Managing Director of Edgefield Capital Management Limited, pointed out that the exclusion of SMEs from the withholding tax administration and varying the rate from 5 to 10 percent will boost economic growth. He explained that SMEs, which dominate the economy, will have more funds to reinvest in their businesses rather than being burdened by excessive taxes.
The new withholding tax policy is thus seen as a strategic move to streamline tax administration, improve compliance, and ultimately enhance Nigeria’s revenue generation capabilities.
