The team upgrading Nigeria’s withholding tax regime has gotten an approval with the summary presented by the Chairman: “A SIMPLIFIED AND BUSINESS FRIENDLY WITHHOLDING TAX REGIME HAS BEEN APPROVED”. Well done team, as we continue to reform the tax system.
Nonetheless, let me drop these words: people willingly pay taxes when taxes are working in their lives. Where am I going? I want, as part of this tax reform, for the team to put efforts on how to deepen the TRUST of the Nigerian people on this matter.
See, I am not sure people really hate to pay taxes in Nigeria. Yes, as a primary school kid, my grandmother gave me money to give to the principal, to send to legendary ex-Governor of Imo State, Chief Mbakwe, because the governor was on TV, and asked the citizens to send him funds to develop Imo State.
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This experience was not an isolated one. The Peoples Club of various branches in South East Nigeria was the IMF and World Bank then. Governors went to them, and asked for funds, and men will return with FREE cash raised to help the government execute projects.
But when Nigeria institutionalized corruption, the Peoples Club stopped giving, and the citizens moved back. So, a “reform” on the tax system that will bring that old TRUST back will be the most potent as Nigeria continues to struggle to increase its tax tickets.
A SIMPLIFIED AND BUSINESS FRIENDLY WITHHOLDING TAX REGIME HAS BEEN APPROVED
Background
Withholding tax was introduced into the Nigeria tax system in 1977 to serve as an advance payment of income tax on specified transactions. It was designed to provide the government with regular revenue flow and to serve as a means of curbing tax evasion.
Challenges
As the regime expanded over time to cover more transactions, various ambiguities and complications crept in. This resulted in many businesses, especially SMEs, being exposed to excessive burden of compliance and a strain on the working capital of low-margin businesses.
Other unintended consequences include:
1) Ambiguities regarding persons required to comply, eligible transactions, applicable rates, and timing of the obligation for remittance, among others.
2) Treatment of the deduction as a separate tax, thereby adding to the list of multiple taxes and cost of doing business.
3) Challenges regarding obtaining refunds for excess withholding tax.
4) Lack of exemption threshold making the cost of compliance by taxpayers and cost of enforcement by the tax authority uneconomical.
5) Some emerging and contemporary issues are not properly addressed.
6) The overall structure of the withholding tax regime promoted tax inequity.
Key changes
As part of the ongoing fiscal policy and tax reforms, a new withholding tax regime has been approved. The key changes introduced are to address the identified challenges and specifically include:
1) Exemption of small businesses from Withholding Tax compliance
2) Reduced rates for businesses with low margins
3) Exemptions for manufacturers and producers such as farmers
4) Measures to curb evasion and minimise tax avoidance
5) Ease of obtaining credit and utilisation of tax deducted at source
6) Changes to reflect emerging issues and adopt global best practices
7) Clarity on the timing of deduction and definition of key terms
The approved regulation is expected to be published in the official gazette in the coming days.
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The TRUST is tied to knowing where and how the tax money is expended, which borders on transparency and accountability. It is easier to steal or squander proceeds from oil and gas than tax money, largely because the former does not come from individuals. If you send someone money and he squanders it, you are not going to send again, irrespective of plenty preaching and threats. When you hear don’t give what is holy to the dogs, it applies to not sending your tax money to managers that are both irresponsible and unscrupulous. It is unlawful to be law abiding in a lawless place.
Nobody needs to preach to anybody. If your managers are not ready to make enormous sacrifices for the advancement of the Nigerian state, then it’s irresponsible and delusional to demand or expect the citizens to do otherwise. It is not in the place of unfaithful people to advise on keeping faith.
What does your president take as breakfast and dinner, does he eat twice or three times per day? How much does his plate of food cost? Once you know these details and they are tracked daily, all men and women in the land will adjust accordingly. Forget noise. The wise do not seek counsel from the foolish. This you must know.
In my opinion, continuous taxation of citizens (and their transactions) without corresponding transparency on the part of the receiving System (ie, the Government) will simply create more distrust as citizens will see this as a continued strain on their finances.
How are the taxes collected spent? We read in the news about the humongous Senate budget and allocations for their “allowances”, et al. How does this translate to better fiscal policies that actually, actively BENEFIT the common Nigerian?
Until these issues are addressed, the citizens will remain severely dissatisfied and this new policy will more entrench distrust.
Interesting times.