The Federal Inland Revenue Service (FIRS) has announced that the newly gazetted withholding tax regulations will take effect starting January 1, 2025. In an official notice signed by FIRS Executive Chairman Zacch Adedeji, the agency confirmed that the existing withholding tax system under the Company Income Tax (CIT) regulations will remain in place until December 31, 2024.
The notice urges taxpayers to adhere to the current tax regulations and underscores the importance of compliance. It states, “The Federal Inland Revenue Service (‘the Service’) hereby notifies taxpayers, tax practitioners, and the general public as follows:
1. The Deduction of Tax at Source Withholding (WHT) Regulations, 2024, published in the Federal Government Gazette, takes effect from January 1, 2025.
2. The current WHT regime as enshrined in the Companies Income Tax (Rates, ETC, of Taxes Deducted at Source (Withholding Tax) Regulations (S.I.10 of 1997) and relevant WHT provisions remains in force up to and until December 31, 2024.”
Background
The Federal Government officially gazetted the updated withholding tax regulations yesterday, under the title “The Deduction of Tax at Source (Withholding) Regulations, 2024.” This new framework aims to repeal substantial aspects of the old withholding tax regulations, which date back to 1978.
In June, the Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms announced that the federal government had approved a revised withholding tax regime, which was awaiting official gazetting. The previous tax system, established in 1978, encountered various challenges, including ambiguity due to the broader scope of transactions. This expansion had led to a proliferation of taxes, inequities within the system, and significant pressure on the working capital of low-margin businesses.
The revised withholding tax regime introduces significant updates, such as lower tax rates for low-margin businesses, measures aimed at curbing tax evasion and avoidance, and an exemption for small businesses from withholding tax. Additionally, the new regulations provide clearer guidelines on deduction timing and key terminology.
Key Information
The FIRS has explained that Withholding Tax (WHT) serves as an advance income tax collection mechanism, with deductions typically ranging from 5% to 10%, depending on the nature of the transaction. Tax returns are due by the 21st of the following month. Late filing incurs a penalty of N25,000 for the first month of delay and N5,000 for each subsequent month of non-compliance.
