FG To Implement New Tax Regulations To Help Manufacturing Sector

The Federal Government of Nigeria is set to establish new tax rules that lessen the burden of tax on the manufacturing sector and small businesses in the country.

This much was contained in the “Deduction of Tax at Source (Withholding) Regulations, 2024,” signed by the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, on Wednesday.

“The Deduction of Tax at Source (Withholding) Regulations, 2024 aim to streamline the deduction of taxes at source from payments to taxable persons, reduce complexities, and promote ease of compliance for businesses,” the regulation shows.

Payments made under the Capital Gains Tax Act, Companies Income Tax Act, Petroleum Profits Tax Act, and the Personal Income Tax Act, will be covered under the newly introduced tax rule.

The new tax regulation will aim to reduce tax evasion, and check arbitrage between corporate and non-corporate structures.

“The objectives of these Regulations are to (a) set out the rules for the deduction of tax at source from payments to taxable persons under the Capital Gains Tax Act, the Companies Income Tax Act, the Petroleum Profits Tax Act, and the Personal Income Tax Act regarding specified transactions.”

While spelling out rules for deduction, the new regulation will smoothen out areas where tax collection used to be ambiguous.

This, the Ministry hopes, will help small businesses and manufacturers benefit from tax exemptions, with emphasis on sectors recording low profits.

Also, businesses that do not provide a Tax Identification Number will see a doubled deduction rate for eligible transactions.

“In the case of the supply of goods, rendering of services, or any eligible transaction involving non-passive income, the amount to be deducted at source shall be twice the rate specified in the Schedule where the recipient has no Tax Identification Number.”

More importantly, tax deducted at source will not be deemed as separate tax, but will, instead, be viewed as an advance payment towards the supplier’s final tax liability.

“A deduction made from a payment shall not be regarded as a separate tax or an additional cost of the contract or transaction.”

However, there will be stiff penalties for businesses that fail to remit deducted taxes or to deduct tax at source.

The new regulations will be effective as of January 1, 2025.

There will, however, be provisions for early application from July 1, 2024, in certain cases.

The regulation will be subject to the approval of the Finance Ministry.