IMPLICATIONS OF THE WITHHOLDING TAX REGULATIONS 2024 FOR BUSINESSES

The implementation of the Withholding Tax Regulations 2024 takes effect from 1st January 2025. The Regulations are a welcome development because they provide clarity on the previously confusing application of withholding tax to transactions between entities in Nigeria.

The key provisions of the Regulations and their implications include the following:

Eligible Transactions and Rates:

The first schedule specifies the transactions eligible for withholding tax deduction and the applicable tax rates. As a business owner, it is now easier to determine how much should be deducted at the source for transactions.

Disincentive for Businesses With No Tax Identification Number (TIN):

If a supplier of goods or a service provider eligible for deduction does not have a TIN, the amount to be deducted will be twice the rate stipulated in the first schedule. This is likely aimed at encouraging businesses to register with the relevant tax agencies to obtain a TIN.

Exemptions for Small Companies:

Small companies with an annual turnover of less than N25 million, and registered businesses with similar characteristics, are exempt from withholding tax if the supplier has a TIN and the transaction is below N2 million for the relevant month.

Withholding Tax as Advance Payment:

The Regulations clarify that withholding tax is not an additional cost to the transaction. Instead, it is an advance payment of tax by the supplier or, in the case of non-resident suppliers without a taxable presence in Nigeria, a final tax payment.

Remittance Deadlines:

o?? For the Federal Inland Revenue Service (FIRS), remittance must be made on or before the 21st day of the subsequent month after payment.

o?? For State Internal Revenue Services:

§? Remittance for deductions relating to Capital Gains Tax and Pay-As-You-Earn (PAYE) is due on or before the 10th day of the following month.

§? For other taxes, remittance is due on or before the 30th day of the subsequent month.

Exempted Transactions

The following transactions are exempt from withholding tax deductions:

• Compensating payments under a registered securities lending transaction (Section 81(8) of the Companies Income Tax Act).
• Dividend payments to a Real Estate Investment Trust or Real Estate Investment Company (Section 80(5) of the Companies Income Tax Act).
• Across-the-counter transactions carried out between parties without a prior contractual relationship for which payment is made immediately.
• Interest and fees paid to a Nigerian bank through direct debit of funds domiciled with the bank.
• Goods manufactured or materials produced by the supplier.
• Imported goods where the transaction does not create a taxable presence in Nigeria for the foreign supplier.
• Payments in respect of income or profits exempt from tax.
• Telephone charges, internet data, and airline tickets.
• Out-of-pocket expenses incurred directly by the supplier, distinguishable from contract fees.
• Insurance premiums.
• Supplies of Liquefied Petroleum Gas (LPG), Compressed Natural Gas (CNG), Premium Motor Spirit (PMS), Automotive Gas Oil (AGO), Low Pour Fuel Oil (LPFO), Dual Purpose Kerosene (DPK), and Jet-A1 fuel.
• Commission retained by brokers in line with industry norms.
• Winnings from games of chance or reality shows designed exclusively to promote entrepreneurship, academics, technological innovation, or scientific advancement.

Eligible Transactions and Applicable Rates

Conclusion

The Withholding Tax Regulations 2024 provide clearer guidelines for businesses, making it easier to understand and comply with tax requirements. Business owners should take note of the key provisions, especially on rates, exemptions, and deadlines, to avoid penalties. With these new rules, businesses can better manage their taxes while contributing to a fairer system.

?