FG Issues Fresh Regulations on Deduction of Withholding Tax at Source

•Oyedele: New regulations to exempt SMEs  from withholding tax

•Supply of Jet-A1, CNG, PMS, AGO, others to attract zero deductions

Ndubuisi Francis in Abuja

The Minister of Finance and Coordinating Minister of the Economy,  Mr. Wale Edun, has released fresh regulations on withholding tax under the Capital Gains Tax Act, Companies Income Tax (CIT) Act, Petroleum Profits Tax (PPT) Act, and the Personal Income Tax (PIT) ACT.

Withholding Tax (WHT) serves as a prepayment of Income Tax, deducted at rates between 5 and 10 per cent depending on the transaction – an advance payment of income tax, which may be used to offset or reduce tax liabilities.

Edun explained that the new regulations, which became effective July 1, 2024, superseded any other regulations in respect of deductions at source or withholding tax.

Captioned “Deduction of Tax at Source (Withholding) Regulations 2024,” the minister said he was issuing the fresh regulations in exercise of the powers conferred on him by Section 81(9) of the Companies Income Tax Act, section 56 of the Petroleum Profit Tax Act, section 73(6) of the Personal Income Tax Act, and of all other powers enabling him.

He said, “The Regulations set out the rules for the deduction of tax from payments to taxable persons under the Capital Gains Tax Act, the Companies Income Tax Act, Petroleum Profits Tax Act, and the Personal Income Tax Act in respect of specified transactions.

“In exercise of the powers conferred upon me by section 81(9) of the Companies Income Tax Act, section 56 of the Petroleum Profit Tax Act, section 73(6) of the Personal Income Tax Act, and of all other powers enabling me in that behalf, I, Adebayo Olawale Edun, Minister of Finance and Coordinating Minister of the Economy, hereby make the following regulations.”

The minister cited the “First Schedule” to the Regulations to enumerate the eligible transactions and the applicable rates at which deductions shall be made at source.

The regulations also listed entities mandated to make deductions at source to include a body corporate or unincorporate, other than an individual; a government; government ministry; department or agency; a statutory body; a public authority; any other institution, organisation, establishment or enterprise including those exempt trom tax as well as a payment agent on behalf of any person.

Providing further insight, the minister explained that the new regulations provided that in the case of payment to the Federal Inland Revenue Service (FIRS), deduction must be remitted not later than the 21st day of the month following the month of payment.

In the case of payment to a State Internal Revenue Service with respect to Capital Gains Tax and Pay-As-You-Earn, the regulations specified a period not later than the 10th day of the month following the payment.

With respect to any other deduction, the guidelines indicated a period not later than the 30th day of the month following the month of payment.

“When an amount is deducted at source, the person making the deduction shall submit a return to the relevant tax authority with the evidence of remittance of the amount deducted as may be prescribed by the relevant tax authority from time to time,” the new law said.

The law added that the submission shall be accompanied with a statement containing the  information in respect of the person from whom the amount was deducted, including the name and address, Tax Identification Number, National lcientification Number, and RC Number or its equivalent.

Others are the nature of transaction in respect of which the payment was made, gross amount paid or payable, amount of tax deducted, calendar month to which the payment relates, and deductions to be receipted.

On offences, the law said: “A person required to make a deduction at source under the relevant Act or under these regulations who fails to do so or having deducted fails to pay to the relevant tax authr›rity on or before the due date, is liable to a penalty as set out in section 40 of the Federal Inland Revenue Service (Establishment) Act or section 74 of the Personal income Tax Act as applicable.”

According to the new regulations,  there are also exemptions from deduction on transactions at source.

Some of the exemptions include compensating payments under a Registered Securities Lending Transaction in line with section 81(8) of the Companies Income Tax Act; any distribution or dividend payment to a Real Estate Investment Trust or Real Estate Investment Company as provided under section 80(5) of the Companies Income Tax Act.

Others are across-the-counter  transactions  as  defined  under  regulation  8  of  the regulations; interest and fees paid to a Nigerian bank by way of direct debit of the funds which are domiciled with the bank, goods manufactured or materials produced bv the person making the supply.

There are also imported goods, where the transaction does not create a taxable presence in Nigeria for the foreign supplier, and any payment in respect of income or profit,which is exempt from tax, among other out-of-pocket expense that is normally expected to be incurred directly by the supplier and is distinguishable from the contract fees.

Also included are insurance premium; supply of Liquefied Petroleum Gas (LPG), Compressed Natural Gas (CNG), Premium Motor Spirit (PMS), Automotive Gas Oil (AGO), Low Pour Fuel Oil (LPFO), Dual Purpose Kerosene (DPK), and JET-A1, among others are also exempt from deductions at source.

Also explaining the new regulations via his verified X (formerly Twitter) handle, the Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Mr. Taiwo Oyedele, disclosed that the federal government had approved a new, business-friendly withholding tax regime.

According to him, there were key changes in the new regulations aimed at easing the compliance burden on businesses, particularly small and medium enterprises (SMEs) and farmers.

SMEs are now exempt from withholding tax compliance, reducing their administrative burden and allowing them to focus on growth, he stated

“As part of the ongoing fiscal policy and tax reforms, a new withholding tax regime has been approved. The key changes introduced are to address the identified challenges and specifically include: Exemption of small businesses from Withholding Tax compliance,” he said.

Oyedele added that businesses operating on low margins would also benefit from reduced withholding tax rates, thereby mitigating financial pressures.

The new regime included specific exemptions for manufacturers and producers, such as farmers, supporting the agricultural sector, he added.

He stressed that measures were also introduced to curb evasion and minimise tax avoidance, ensuring a fairer tax system, noting that the reforms would also simplify the process for businesses to obtain credit and utilise tax deducted at source, and improving liquidity.

The new regulation would address several challenges, including the excessive compliance burden on SMEs, strain on working capital of low-margin businesses, and ambiguities on compliance, eligible transactions, and remittance timing.

It would also tackle the issue of multiple taxes and high cost of doing business, challenges in obtaining refunds for excess withholding tax, and lack of exemption threshold, making compliance and enforcement uneconomical.

Key changes introduced in the new regulation include exemption of small businesses from withholding tax compliance, reduced rates for businesses with low margins, and exemptions for manufacturers and producers, such as farmers.