Firm Raises Concerns Over FG’s Withholding Tax Regulations, Calls For Urgent Action

Kreston Pedabo, a leading Nigerian accounting firm, has raised concerns over the Federal Government’s updated Withholding Tax (WHT) regulations, citing potential uncertainties that could affect taxpayers across the country.  In a detailed analysis, Olubunmi Kuteyi, Partner of Tax Services, and Oluwasanmi Ogunsanwo, Manager of Tax Advisory at Kreston Pedabo, highlighted several ambiguities in the new […]

Kreston Pedabo, a leading Nigerian accounting firm, has raised concerns over the Federal Government’s updated Withholding Tax (WHT) regulations, citing potential uncertainties that could affect taxpayers across the country. 

In a detailed analysis, Olubunmi Kuteyi, Partner of Tax Services, and Oluwasanmi Ogunsanwo, Manager of Tax Advisory at Kreston Pedabo, highlighted several ambiguities in the new rules, urging swift action to address these issues before they create widespread confusion.

The updated WHT regulations, released in July 2024, were introduced to replace the outdated 1997 guidelines. The Federal Government’s goal was to modernize and streamline Nigeria’s tax system, making it more effective and easier to navigate for businesses and individuals alike.

However, the initial publication of these regulations sparked criticism due to its informal release on the letterhead of the Honourable Minister of Finance and Coordinating Minister of the Economy. The situation was later rectified with an official gazette publication, including minor revisions.

Despite these efforts, Kreston Pedabo believes the new guidelines contain several inconsistencies that could hinder compliance. The firm warned that without urgent clarifications, taxpayers could face significant challenges in adhering to the new system, while tax administrators may struggle with enforcement.

One major concern revolves around the conflicting commencement and implementation dates within the regulations. The updated WHT rules state that they will take effect on September 30, 2024 but official implementation is set for January 1, 2025, Pedabo pointed out that this discrepancy could leave taxpayers confused about when they are expected to comply with the updated requirements.

“This contradiction could lead to a compliance dilemma for taxpayers who might mistakenly apply the new guidelines prematurely or delay their implementation past the intended start date,” the firm warned.

Pedabo also expressed concern about the provisions for early adoption of the regulations, which are said to be available from July 1, 2024 The firm noted that the guidelines around early adoption are vague, leaving taxpayers uncertain about the administrative processes they need to follow if they choose to adopt the regulations ahead of the January 2025 start date.

“The current regulations place the burden of managing early applications on the tax authorities, leaving taxpayers in limbo,” Pedabo said. This uncertainty has been compounded by a recent Public Notice from the Federal Inland Revenue Service (FIRS), which fails to provide clear instructions for taxpayers who have already started implementing the new rates from July.

The FIRS Public Notice clarified that the 2024 WHT regulations would take full effect on January 1, 2025, with the 1997 guidelines remaining in force until then. However, Kreston Pedabo raised concerns that this notice does not address the fate of taxpayers who had already begun applying the new rates from July 2024.

“Taxpayers are now questioning the status of deductions made under the new rates since July,” Pedabo stated. “Will tax authorities refund amounts where higher rates were deducted prematurely, or will they penalize those who applied lower rates ahead of the official start date?”

In light of these issues, Pedabo urged all taxpayers—both corporate and individual—to maintain detailed records of all qualifying transactions and payments. This will be particularly important for businesses that have already complied with the new regulations as of July, as they may be subject to reviews or audits by the FIRS.

“Record-keeping is essential to avoid potential liabilities or disputes with tax authorities. Companies that have begun applying the new rates must be prepared for scrutiny,” Pedabo advised.

To resolve these emerging challenges, Pedabo called on the Ministry of Finance and the FIRS to convene a stakeholder engagement meeting. Such a forum, according to the firm, would allow taxpayers and businesses to raise their concerns and seek clarification on the new regulations. It would also facilitate a smoother transition into the new WHT regime and address uncertainties before they evolve into larger compliance issues.

“Clear communication and collaboration between stakeholders are key to ensuring a seamless shift to the new WHT system,” the firm concluded.

As Nigeria continues its push for improved tax administration and compliance, Kreston Pedabo stressed that any regulatory changes must be implemented in a way that minimizes confusion and enhances transparency for taxpayers.