An analyst, Dr Titilayo Fowokan, has conveyed a positive outlook on the recently gazetted withholding tax regulation titled, ‘The Deduction of Tax at Source (Withholding) Regulations, 2024’, highlighting its adherence to international best practices in taxation.
According to Fowokan, this alignment will enhance the efficiency and effectiveness of tax collection in the country. She said this while speaking on Radio Now recently in Lagos.
Fowokan emphasised that the newly gazetted regulation, effective January 1, 2025, will enhance business operations and economic transparency.
She said, “The revised legislation offers rate reductions and full withholding tax exemptions for businesses, including SMEs with annual turnovers up to N25m.”
She further clarified that the regulation clarifies the application of withholding tax for unincorporated entities, particularly those operating in the informal sector.
She explained that transparency aims to eliminate confusion and ensure that these businesses understand their tax obligations.
The tax expert said, “It also separates resident from non-resident businesses operating in Nigeria, thereby enhancing the ease of doing business. The regulation makes a clear distinction between Nigerian and foreign companies, ensuring compliance with tax laws for all entities. It outlines specific procedures for transactions in Nigeria, highlighting that the application of WHT varies between related and unrelated businesses.”
Fowokan underscored the need to educate the public about their rights and responsibilities under the new WHT regime to improve compliance.
She noted that withholding tax is an advance payment of income tax, not a separate tax, and warned that non-registered taxpayers still have tax obligations and may incur penalties for non-compliance.
“As a service provider, taxes are deducted from your payments and sent to the tax authority, serving as a credit against your annual tax liability,” she stated.
She further mentioned that the new regime ensures WHT does not exceed a company’s profit margin, allowing low-margin firms to pay as little as two per cent on their transactions.
She viewed the development as a crucial step in protecting and recognising low-income businesses, like practices in other countries.
Fowokan noted that while the new regime adds responsibilities for taxpayers, it ultimately provides valuable benefits.
“The WHT schedule now mandates taxpayers to separate related-party and third-party transactions, track vendors from countries with double taxation agreements, and document deductions. Withholding agents must also complete forms to verify deductions and remittances for vendors’ credit claims,” she explained.
