The Federal Government has unveiled new tax regulations aimed at reducing the financial strain on the manufacturing sector and small businesses.
Titled the “Deduction of Tax at Source (Withholding) Regulations, 2024,” the new rules, signed by Minister of Finance and Coordinating Minister of the Economy, Wale Edun, are designed to streamline tax deductions, ease compliance, and reduce tax complexities.
According to the Finance Ministry, the regulations, which cover payments under the Capital Gains Tax Act, Companies Income Tax Act, Petroleum Profits Tax Act, and the Personal Income Tax Act, are part of the government’s efforts to align with global best practices.
They aim to curb tax evasion and prevent arbitrage between corporate and non-corporate structures.
Speaking on the new rules, a ministry representative explained, “This initiative is a significant step towards creating a tax-friendly environment for businesses, particularly small enterprises and manufacturers with low-profit margins. The focus is on reducing the tax burden while promoting compliance and transparency.”
One of the key features of the new regulations is the introduction of clear guidelines on tax exemptions for small businesses. Companies with a turnover of N2 million or less in a calendar month, provided they have a valid Tax Identification Number (TIN), are exempt from the requirement to deduct taxes at source.
“The introduction of exemptions and simplified processes is aimed at fostering growth within the small business sector,” the representative added.
“However, businesses operating without a valid TIN will face doubled deduction rates for eligible transactions, underlining the importance of compliance.”
The regulations also outline specific exemptions for certain transactions, including compensating payments under registered securities lending transactions, goods manufactured by suppliers, and telephone charges. In a bid to prevent tax evasion, government ministries, statutory bodies, and public authorities are mandated to deduct taxes at source for eligible transactions.
Furthermore, the regulations make it clear that tax deducted at source will not be an additional cost but will be treated as an advance payment toward the supplier’s final tax liability. This approach, the Ministry says, is designed to ease the financial burden on businesses while ensuring that tax obligations are met efficiently.
“Failure to remit deducted taxes or to deduct taxes at source will attract significant penalties,” the Ministry warned, adding that the penalty structure aligns with existing legislation under the Federal Inland Revenue Service (Establishment) Act and the Personal Income Tax Act.
The regulations are scheduled to take effect on January 1, 2025, although provisions allow for early application from July 1, 2024, in specific cases. The Federal Inland Revenue Service (FIRS) is expected to release further guidelines to ensure smooth implementation, subject to approval from the Finance Ministry.
The introduction of the Deduction of Tax at Source (Withholding) Regulations, 2024, reflects the government’s commitment to modernising the tax system, reducing inefficiencies, and encouraging compliance across various sectors.
