The Federal Government has announced new tax regulations, the “Deduction of Tax at Source (Withholding) Regulations, 2024,” which aim to alleviate the tax burden on the manufacturing sector and small businesses. Signed by the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, these regulations are intended to simplify tax deductions and improve compliance for businesses. They will specifically address payments covered by various tax acts, including the Capital Gains Tax Act, Companies Income Tax Act, Petroleum Profits Tax Act, and Personal Income Tax Act. The intention behind these new regulations is to align tax practices with global standards, minimize tax evasion, and close loopholes that favor certain business structures over others.
The new regulations contain specific rules outlining the processes for deducting taxes at source, focusing on previously ambiguous areas where tax collection has been challenging. The government’s goal is to create a favorable environment for small businesses and manufacturers, particularly those operating in sectors with low-profit margins. The introduction of clear eligibility guidelines for deductions is significant, as it aims to foster a supportive landscape for businesses that may need assistance in managing tax obligations. The ministry asserts that by clarifying these regulations, tax compliance for small businesses and manufacturers, in particular, will be streamlined.
One critical aspect of the regulations is the stipulation on Tax Identification Numbers (TINs). Businesses that do not provide a TIN will face a higher deduction rate for eligible transactions, effectively doubling the standard deduction. This measure is designed to encourage businesses to register for tax identification, facilitating greater tax compliance. The ministry has articulated that this approach is necessary to ensure that all businesses contribute fairly to tax revenue while also establishing a framework for accountability among businesses.
The regulations place specific responsibilities on various entities, including government ministries, statutory bodies, and public authorities, mandating them to deduct taxes at source for eligible transactions. However, small businesses with a turnover of N2 million or less in a calendar month and possessing a valid TIN are exempt from this requirement. By providing this exemption, the government aims to alleviate the administrative burden on smaller enterprises, allowing them to focus on growth without the added stress of immediate tax deductions.
Importantly, the regulations clarify that taxes deducted at the source will not be perceived as additional costs but will be treated as prepayments toward the provider’s final tax liabilities. This policy is designed to minimize the financial pressures on businesses, ensuring that they can operate without the fear of hidden costs resulting from tax deductions. Furthermore, the consequences of failing to remit deducted taxes or deduct tax at source are outlined, with the penalties aligning with existing tax legislation. This level of transparency serves to highlight the government’s commitment to accountability in tax collection.
Finally, the regulations define specific exemptions for transactions, such as compensating payments under registered securities lending transactions and goods manufactured by suppliers. These exemptions are crucial to ensuring that tax policies do not impede business activities in vital sectors, including telecommunications, energy, and manufacturing. By targeting exemptions in such strategic areas, the government hopes to sustain economic growth while encouraging adherence to tax regulations. Overall, these regulations indicate a strategic move toward a more efficient and equitable taxation system, benefiting both small businesses and the broader economy.
