A Tax expert, Dr. Titilayo Fowokan has voiced enthusiasm regarding the recently gazetted withholding tax law, “The Deduction of Tax at Source (Withholding) Regulations, 2024,” claiming that the Regulation is in line with global tax best practices. In his remarks, Fowokan believed that the gazetted Legislation would facilitate commercial transactions and encourage economic transparency if it were implemented by 1st of January, 2025. Analyzing the legislation, he stated that it gives enterprises, especially SMEs, a rate reduction and complete exemption from withholding tax if their annual turnover is less than ₦25 million.
Dr. Titilayo further maintained that the regulation clarifies the application of the Withholding Tax (WHT) to unincorporated businesses, including those operating in the informal sector. The tax expert underlined the importance of educating the public about their rights and responsibilities under the new WHT regime in order to improve compliance. The President Bola Tinubu’s administration, who has made economic reforms and transparency a top priority since entering office, has received widespread plaudits for the Regulations, as a progressive initiative. In an era of fast globalization, the administration’s support for this regulation demonstrates its dedication to modernizing Nigeria’s tax system, bringing it into compliance with international norms, and boosting local revenue.
WHT regulations embrace the BEPS Action Plan.
Particularly, the regulations are regarded as a strategic move to bring national tax laws into compliance with global tax best practices and standards. Adopting tax systems that are not only effective and transparent but also compatible with those in other jurisdictions has become more crucial for nations as economies grow more globally interconnected. This legislation significantly contributes to this alignment by following the guidelines and suggestions established by international organizations like the United Nations (UN) and the Organization for Economic Co-operation and Development (OECD).
One of the major ways this rule brings Nigeria into compliance with international tax norms is through the adoption of the Base Erosion and Profit Shifting (BEPS) Action Plan of the OECD, which has been embraced by more than 130 nations. BEPS was created to address the problems of multinational firms evading taxes worldwide, especially when they move their profits to countries with low tax rates in order to reduce their tax liabilities. Nigerian withholding laws explicitly target income kinds that are frequently the focus of profit-shifting schemes, such as dividends, interest, and royalties.
Dedication to tax neutrality is highlighted in the policy.
By taxing these Revenue streams at the source, Nigeria is adhering to a widely accepted strategy to guarantee that taxes are paid where economic activity takes place and value is generated, lowering the possibility of profit-shifting. Additionally, the country’s dedication to tax neutrality—a tenet emphasized by the United Nations and OECD as essential to international tax standards—is highlighted in the WHT legislation. In accordance with the OECD’s recommendation to apply withholding taxes evenly, the regulation’s consistent tax rates for various income kinds and explicit guidelines for foreign income avoid any imbalances that could otherwise distort the economy.
Along with these important tax tenets, the regulation facilitates Nigeria’s involvement in international information sharing programs including the US Foreign Account Tax Compliance Act (FATCA) and the OECD’s Common Reporting Standard (CRS). Both frameworks advocate for increased transparency and data sharing among tax agencies to combat tax evasion. Nigeria is strengthening its ability to share information with other jurisdictions by enforcing stringent reporting and record-keeping regulations, which would facilitate the detection and discouragement of cross-border tax evasion. The county’s tax system is strengthened by this degree of openness, which also encourages confidence among foreign investors.
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Double taxation, a major issue with foreign tax procedures, is also addressed by the Tinubu administration’s withholding tax policy. Nigeria’s implementation of withholding tax laws demonstrates a commitment to compliance and capacity-building, both of which are essential components of international tax standards. In addition to giving Nigerian companies, individuals, and financial institutions time to adjust, the 2024 legislation’ gradual implementation also gives the tax authorities the opportunity to build the Infrastructure they need for enforcement and monitoring. The best practices in global tax administration, where flexibility is possible and compliance is guaranteed across a variety of sectors, are also reflected in this measured approach.