Key Takeaways:
– New withholding tax regulations take effect on 1st January 2025.
– Current tax system remains in place until 31st December 2024.
– Small businesses will benefit from tax exemptions under the new rules.
– Penalties for late tax filings remain stringent.
The Federal Inland Revenue Service (FIRS) has announced that a new withholding tax system will take effect from 1st January 2025, following its recent gazetting. In a statement signed by Executive Chairman Zacch Adedeji, the agency confirmed that the current withholding tax regulations, as outlined in the Company Income Tax (CIT) framework, will remain in force until the end of 2024.
The FIRS urged taxpayers and businesses to remain compliant with the existing regulations as the transition to the new regime approaches.
According to the notice, “The Deduction of Tax at Source Withholding (WHT) Regulations, 2024, published in the Federal Government Gazette, will be effective from 1st January 2025. The present WHT regime, detailed in the Companies Income Tax (Rates, ETC, of Taxes Deducted at Source (Withholding Tax) Regulations (S.I.10 of 1997), will stay in place until 31st December 2024.”
New Tax Regime
The gazetted withholding tax regulations titled “The Deduction of Tax at Source (Withholding) Regulations, 2024” were introduced to replace the previous system, which had been in place since 1978. The earlier framework had faced criticism for its lack of clarity due to the expanded scope of taxable transactions, which led to increased tax burdens and inefficiencies, especially for businesses with lower profit margins.
The updated system seeks to address these issues by introducing lower rates for low-margin businesses, exempting small businesses from withholding tax, and providing more precise guidelines for deductions. These changes aim to enhance fairness and simplify compliance for taxpayers.
What to Know
FIRS has clarified that withholding tax functions as an advance payment towards income tax, with deductions typically ranging from 5% to 10% depending on the type of transaction. Tax filings must be submitted by the 21st of the following month to avoid penalties. Failure to file on time results in a penalty of N25,000 for the first month, with an additional N5,000 charged for every month thereafter.
As the new regime nears implementation, the FIRS has urged businesses and tax practitioners to stay informed and ensure they meet all filing requirements to avoid penalties.
Credit: Nairametrics (Text Excluding Headline)
