Nigeria Implements 2024 Withholding Tax Regulations to Support SMEs and Boost Economic Growth

The Federal Government has officially commenced the implementation of the 2024 Withholding Tax Regulations, marking a significant step towards modernising Nigeria’s tax system. The regulations, approved by President Bola Tinubu in July 2024 and published in the Official Gazette in October, became effective on January 1, 2025.

Formally titled the “Deduction of Tax at Source (Withholding) Regulations, 2024,” the new policy aims to streamline tax compliance processes, reduce administrative inefficiencies, and lessen the financial burdens on businesses. This overhaul is particularly focused on Small and Medium Enterprises (SMEs), manufacturers, producers, and farmers—sectors crucial to Nigeria’s economic stability and long-term growth.

Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, announced the commencement of the new tax regime on New Year’s Day via his official X (formerly Twitter) account. “As part of the ongoing fiscal policy and tax reforms, the 2024 Withholding Tax Regulations, approved in July 2024 and published in the Official Gazette in October, take effect today, January 1, 2025,” Oyedele stated.

Among the notable features of the updated regulations is the exemption of SMEs from withholding tax compliance, a move intended to ease their operational challenges and promote innovation. Additionally, businesses with low-profit margins will benefit from reduced withholding tax rates, improving their cash flow and helping reduce operational costs.

The new rules also exempt manufacturers, producers, and farmers from withholding tax obligations, aiming to strengthen these essential sectors and ensure their continued growth. Furthermore, the reforms make it easier for businesses to claim tax credits for taxes deducted at source, helping them make use of such deductions more efficiently.

By addressing long-standing issues such as ambiguities in timing and definitions, the updated regulations remove previous barriers to compliance, ultimately curbing tax evasion, minimizing avoidance opportunities, and improving transparency in tax remittances.

Earlier in the year, the Federal Government unveiled plans to reduce the tax burden on manufacturing and small businesses through the “Deduction of Tax at Source (Withholding) Regulations, 2024.” This initiative covers taxes related to the Capital Gains Tax Act, Companies Income Tax Act, Petroleum Profits Tax Act, and the Personal Income Tax Act.

In related tax developments, Oyedele revealed that high-income earners in Nigeria could soon face higher Pay-As-You-Earn (PAYE) taxes under proposed tax bills aimed at simplifying the tax system and addressing fiscal inequities. These changes, which would adjust the tax brackets to account for inflation, would ensure that high-income individuals contribute more while providing relief to low- and middle-income earners.

According to Oyedele, the proposed reforms aim to make the tax system more progressive. For example, individuals earning over N50 million annually would face a top marginal tax rate of 25%. Meanwhile, those earning N1.7 million per month or less would see a reduction in their tax obligations, with over 90% of workers expected to benefit from the revised system.

The new tax system also includes a raise in the tax-free threshold to N800,000 annually (approximately N67,000 monthly), which will exempt low-income earners from PAYE tax altogether. Rent relief of up to N200,000 annually will further benefit individuals earning up to N1 million per year (N83,000 monthly), allowing them to pay no tax.

While higher-income earners will contribute more under the revised system, the majority of Nigerians will see reduced taxes, with the system designed to reduce tax burdens for low-income workers and address disparities between personal and corporate taxes.