Taiwo Oyedele, chairman the presidential committee on fiscal policy and tax reforms, says the federal government has approved the exemption of small businesses from withholding tax.
Oyedele disclosed this at a recent consultation forum on the mandate of the tax reform committee in Lagos.
Withholding tax (WHT) is an advance payment of income tax which may be used to offset or reduce tax liabilities, according to the Federal Inland Revenue Service (FIRS).
WHT is deducted at varying rates ranging from 5 percent to 10 percent depending on the transaction.
Speaking to journalists, Oyedele said the exemption applies to businesses earning N25 million annually and below.
“So actually, the threshold now for the exemption is currently 25 million based on the law we have as of today. The one we are proposing is the one that will move it to 50 million,” he said.
“So, the withholding tax regulation that has been approved now exempt companies earning 25 million or less from having to worry about withholding tax.
“So, if you’re, you know, maybe even doing some services, maybe you doing whatever it is… it might be a restaurant, you buy things from people, you don’t need to worry about deducting withholding tax from them if your business is small.
“Once we have the approval for our higher threshold of 50 million, then it goes to 50 million. And then anybody above that must do the right thing, otherwise, there’ll be consequences.”
Oyedele said one of the objectives of the withholding tax regulation is to simplify it, and reduce the burden on businesses — particularly SMEs.
He said the tax reform committee wants to promote competitiveness, equity, and ease of compliance.
“We are starting with the withholding tax, because one, the impact cuts across especially for companies where the amount that is being deducted from them is far more than the taxes they need to pay and they have their money being tied up with government when they are borrowing at 25/30 percent,” he said.
“So, this is not good for business growth and expansion. In fact, it can lead to, you know the liquidation of a company if you’re out of money.
“So, we’re trying to address so many things at the same time. Making sure that our policy is not solving one problem and creating another.”
Oyedele added that part of the goal is to prevent tax avoidance and detect tax evasion to close the tax gap, “then reflect what is happening globally”.
(The Cable)