Dons Eze
NEW WITHHOLDING TAX BEGINS
President Bola Tinubu
The Federal Government has commenced the implementation of the 2024 Withholding Tax Regulations, signalling effort to modernise Nigeria’s tax system.
Approved by President Bola Tinubu in July 2024 and published in the Official Gazette in October, the revised regulations became effective on January 1, 2025.
Formally titled the “Deduction of Tax at Source (Withholding) Regulations, 2024,” the updated regulation is designed to streamline compliance processes, reduce inefficiencies, and ease administrative burdens for businesses.
These changes are particularly aimed at Small and Medium Enterprises, manufacturers, producers, and farmers – sectors considered vital to Nigeria’s economic stability and growth.
Announcing the commencement of the new tax regime on New Year’s Day, the Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, said on his X (formerly Twitter) account, “As part of the ongoing fiscal policy and tax reforms, the 2024 Withholding Tax Regulations, which was approved in July 2024 and published in the Official Gazette in October 2024, take effect today 1 January 2025.”
He further highlighted several transformative features of the updated policy.
Among them is the exemption of SMEs from withholding tax compliance, a move expected to alleviate administrative challenges and financial constraints, thereby fostering growth and innovation in the sector.
Businesses with low-profit margins will also benefit from reduced withholding tax rates, which are intended to improve cash flow and lower operational costs.
The new regulations exempt manufacturers, producers, and farmers from withholding tax obligations, a measure aimed at strengthening these critical sectors to ensure their sustainability and long-term growth.
Also, the reforms streamline the process of obtaining credit for taxes deducted at source, making it easier for businesses to utilize such deductions efficiently.
By addressing longstanding issues, such as ambiguities in the timing of deductions and definitions of key terms, the updated regulations eliminate barriers that previously made compliance difficult.
The reforms are also designed to curb tax evasion, minimize avoidance opportunities, and enhance transparency in tax remittance.
The PUNCH earlier reported that the Federal Government unveiled new tax regulations aimed at reducing the tax burden on the manufacturing sector and small businesses.
This was disclosed in the “Deduction of Tax at Source (Withholding) Regulations, 2024,” signed by the Minister of Finance and Coordinating Minister of the Economy, Wale Edun.
The Deduction of Tax at Source (Withholding) Regulations, 2024, aim to streamline the deduction of taxes at source from payments to taxable persons, reduce complexities, and promote ease of compliance for businesses.
The newly introduced regulations cover payments made under the Capital Gains Tax Act, Companies Income Tax Act, Petroleum Profits Tax Act, and the Personal Income Tax Act.
Earlier, Oyedele revealed that the highest-earning Nigerians could soon pay over N1m monthly in Pay-As-You-Earn tax under the proposed tax bills aimed at correcting fiscal inequities and simplifying the system.
He disclosed this in a series of tweets on his official X account on Monday.
Oyedele stated that the proposed changes would address the regressive nature of the current tax structure, which has remained unchanged since 2011.
He explained that inflation over the years has caused “fiscal drag,” pushing many low-income earners into higher tax brackets.
For instance, under the current system, an individual earning N400,000 per month pays the same top marginal tax rate as someone earning N20m monthly.
The proposed framework seeks to restore progress, ensuring that high-income earners pay their fair share while providing relief to low- and middle-income earners.
The proposed tax bills raise the tax-free threshold to N800,000 annually, equivalent to N67,000 monthly, compared to the current N300,000 threshold.
Also, rent relief of up to N200,000 annually means individuals earning up to N1m yearly (N83,000 monthly) will be exempt from PAYE tax.
Oyedele noted that these measures would particularly benefit low-income earners, including those on the new minimum wage.
Contrary to public perception that workers would pay more taxes, Oyedele clarified that individuals earning N1.7m or less monthly would see their PAYE obligations reduced under the proposed system.
He noted that over 90 per cent of workers in the public and private sectors are expected to pay lower taxes.
High-income earners, however, would face a slight increase, with the top tax rate rising to 25 per cent for incomes exceeding N50m annually.
His post read, “Individuals earning about N1.7m or less per month will pay lower PAYE tax under the bills while those earning the new minimum wage and slightly more will be fully exempted.
“These thresholds will result in over 90 per cent of workers in the public and private sectors paying lower taxes while high income earners will pay slightly more in a progressive manner up to 25 per cent for the ultra high networth individuals.”
Under the proposed system, individuals earning N5m monthly would pay over N1.07m in PAYE tax, reflecting an effective tax rate of 21.5 per cent, compared to the current N930,667, with an effective rate of 18.6 per cent.
Conversely, those earning N250,000 monthly would see their tax obligations reduced from N29,167 to N25,000, reflecting a lower effective tax rate of 10 per cent compared to 11.7 per cent under the current system.
Oyedele also addressed concerns about the seemingly steep jump from 0 per cent to 15 per cent in the second tax band.
He explained that while the rate appears significant, it is lower than the current marginal rate of 21 per cent for similar income levels after allowances.
For example, a person earning N3m annually will have an effective tax rate of 10 per cent under the proposed system, compared to 12 per cent currently.
The reforms integrate existing reliefs, such as the Consolidated Relief Allowance and personal relief, directly into the tax brackets and rates.
Oyedele explained that this simplification would make it easier for taxpayers with basic education to calculate their taxes independently.
Statutory deductions, now referred to as eligible deductions, remain intact. These include contributions to the National Housing Fund, National Health Insurance Scheme, Pension Reform Act, and interest on loans for developing an owner-occupied residential house.
The proposed changes aim to simplify the system, reduce the tax burden for most Nigerians, and address disparities between personal and corporate tax regimes.
Oyedele emphasised that while high-income earners would shoulder a greater tax burden, the majority of Nigerians would benefit from reduced taxes.
