FG Unveils New Tax Laws To Boost Manufacturing Sector

The federal government has released new tax regulations intended to lighten the tax load on small businesses and the manufacturing sector.

This was disclosed 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 newly introduced regulations will cover payments made under the Capital Gains Tax Act, Companies Income Tax Act, Petroleum Profits Tax Act, and the Personal Income Tax Act. Among its objectives are promoting global best practices, reducing tax evasion, and curbing 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.”

The regulations outline rules for deductions, targeting areas where tax collection has previously been difficult or unclear.
The Ministry aims to foster an environment where small businesses and manufacturers can benefit from tax exemptions, especially in sectors with low profit margins.

Furthermore, the regulations address exemptions for small businesses and promote ease of compliance for manufacturers, with clear guidelines on which transactions and sectors are eligible for deductions.

Notably, businesses that do not provide a tax identification number will face 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.”

The regulations specify that various entities, including government ministries, statutory bodies, and public authorities, are mandated to deduct taxes at source for eligible transactions. However, small companies with a turnover of N2 million or less in a calendar month and possessing a valid TIN are exempt from this requirement.

A key point in the regulations is that tax deducted at source will not be regarded as an additional cost or separate tax but will be treated as an advance payment towards the final tax liability of the supplier. This approach is designed to ease the burden on businesses and ensure compliance without adding unnecessary financial strain.

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

It is stated that failure to remit deducted taxes or to deduct tax at source will incur significant penalties. The penalty structure aligns with existing legislation under the Federal Inland Revenue Service (Establishment) Act and the Personal Income Tax Act. Companies that have deducted taxes but failed to remit them will face penalties and interest as stipulated by the law.

Exemptions are also defined under the regulations, covering transactions such as compensating payments under registered securities lending transactions, goods manufactured by the supplier, and telephone charges.

These exemptions aim to ensure that tax policies do not stifle business activities, particularly in critical sectors such as telecommunications, energy, and manufacturing.

The regulations are set to come into effect on January 1, 2025, but provisions allow for early application from July 1, 2024, in some cases. The Federal Inland Revenue Service will issue further guidelines to ensure smooth implementation, subject to the approval of the Finance Ministry.

The Deduction of Tax at Source (Withholding) Regulations, 2024, reflect the government’s ongoing efforts to modernise Nigeria’s tax system, reduce inefficiencies, and encourage compliance across various sectors.