05/10/2024
*New WHT Regulations and Small Businesses - Frequently Asked Questions (FAQs)*
Q1. How will the new WHT Regulations affect small businesses?
_A1. Small businesses will enjoy exemptions from withholding tax under the new rules. This will reduce their tax burden, lower their cost of working capital, improve their cash flows, and overall ease of doing business._
Q2. What does the exemption entail in practical terms?
_A2. It means that small businesses are no longer required to deduct tax on payments to their suppliers. However, to curb tax evasion, they must deduct tax if the supplier has no Tax Identification Number (TIN) or where the total payment to a supplier is one month exceeds N2 million except for transactions which are specifically exempted as listed in the Regulations._
Q3. How will the deduction be reported to the tax authority if the supplier has no TIN?
_A3. Where a supplier has no TIN, the NIN in the case of an individual or RC number in the case of a company should be stated. The rate of withholding tax on such payment is doubled. This doubled rate is not applicable to investment income such as dividend, interest, and rent._
Q4. What is the definition of a small business?
_A4. A small business is any company or an enterprise with an annual turnover not exceeding N25 million. There is a draft proposal to increase this threshold to N50 million subject to the law being enacted._
Q5. Where a deduction of tax is applicable, can the supplier insist that any deductions be grossed up, thereby increasing the cost of the small business?
_A5. No. The new WHT Regulations prohibit the treatment of tax deduction at source as an additional cost of the recipient._
Q6. How about withholding tax on payment of an invoice due to a small business?
_A6. Withholding tax is not applicable on payments due to a small business in the following circumstances:_
- _a small company with annual turnover not exceeding N25 million_
- _all businesses in respect of manufacturing, agriculture, and other production activities regardless of their turnover_
- _sales in cash or instant electronic payments_
- _other transactions stated as exempt under the new regulations_
Q7. Does a small business need to file monthly withholding tax returns, whether it has withholding tax to remit or not?
_A7. No. Businesses, including SMEs, are only required to file returns in any month when they have deducted taxes at source in the previous month. Such returns should contain the information prescribed in the schedule to the WHT Regulations._
Q8. What happens if a small business fails to deduct tax where applicable?
_A8. An administrative penalty will be charged for failure to deduct tax where applicable. If you deduct tax and fail to remit it by the due date being the 21st (for remittances to FIRS) or 30th (for remittances to a state Internal Revenue Service) of the following month, you will be liable to pay the amount not remitted with penalty and interest._
Q9. When does the new Withholding Tax Regulations take effect?
_A9. The new rules take effect from 1st of January 2025. However, an early adoption may be permitted subject to guidelines issued by the relevant tax authority._
Q10. How can we learn more about the new WHT Regulations and other ongoing fiscal and tax reforms?
_Q10. You can learn more by visiting the fiscalreforms.ng website or social media accounts “Fiscal Reforms” on X, LinkedIn, Facebook, Instagram, YouTube, and WhatsApp Channel._
