The newly gazetted withholding tax (WHT) regulations have generated reactions from the business community, with some stakeholders demanding that the exemption turnover ceiling be raised to as much as N200 million to reflect the current reality.
The new scheme grants micro, small and medium enterprises (MSME) operators with a yearly turnover of N25 million and below exemption from paying WHT. However, the intended beneficiaries said the ceiling does not take into consideration the impact of naira depreciation and inflation on business valuation.
Since July last year, the naira has lost over 70 per cent of its value, eroding the real value of businesses and turnover.
While the operators in the MSME space agreed that the exemption is a step in the right direction, they said that given the present economic realities and the rapid depreciation of the naira, the N25 million is insignificantly small.
Pointing out that the law exempting MSMEs with N25 million annual turnover is not a new one as it was originally contained in the Finance Act of 2021, they said naira was about N500/$ then.
Three years later, the local currency has fallen to about N1,700/$.
Announcing the publication of the gazetted withholding tax regulations yesterday, the Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele, said the regulation grants rate reduction and full exemption from WHT to businesses, including MSMEs with an annual turnover not exceeding N25 million.
According to him, the regulation takes effect on September 30, while implementation begins on January 1, 2025, to allow for a minimum of 90-day notice required for tax changes in line with the 2017 National Tax Policy.
“However, there is a provision permitting the Federal Inland Revenue Service (FIRS), with the approval of the Finance Minister, to issue guidelines for the implementation of the Regulations and where appropriate, permit early application of the Regulations from 1st July 2024,” he said.
“The essence of this provision is to enable persons who wish to adopt the regulations early to do so given that it is generally providing reliefs to businesses rather than imposing a burden,” he added.
Part of the new changes to the regulation includes the exemption of small businesses from WHT compliance, reduced rates for businesses with low margins, exemptions for manufacturers and producers such as farmers, measures to curb evasion and minimise tax avoidance, ease of obtaining credit and utilisation of tax deducted at source, changes to reflect emerging issues and adopt global best practices as well as clarity on the timing of deduction.
Reacting to the development, the Chief Executive Officer (CEO) of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, pointed out that the threshold was too low.
“At the time this was being proposed initially, I don’t think we had the erosion of naira that we now have. The maximum value, N25 million is about $15,000. And if you divide that, it comes to about $70 daily. Even a daily transporter can generate that in one day, except the government is talking solely about nano/micro businesses.
“If they are talking of SMEs in the true sense of it and need to situate it in current economic realities, it should fall between N100-N200 million turnover thresholds at the very least,” he argued.
While this could be positive for businesses and micro manufacturers, he said if the government truly wants to impact MSMEs beyond symbolism, it should not be less than N100 million.
“Even amala joints have turnovers of about N100,000 daily or almost N3 million in a month. The materiality of the exemption for SMEs is extremely minimal because our currency is very weak.
“It is not like they are making huge profits or anything because we are talking of turnover here and therefore, a lot of SMEs would still end up falling within the taxable threshold, so it is looking like mere symbolism. Once your turnover is more than N70,000 daily, you are automatically cut off,” he said.
He also argued for flexibility in the determination.
“Figures should not be fixed; there should be room for adjustments because of our rapidly increasing inflation. A few years down the line, this amount becomes even more laughable due to inflation which is what we are seeing now. When this law of exemption of small SMEs was being proposed a few years ago, 25 million naira was significant.
“I am not sure if relevant BMOs were consulted before this was finalised and gazetted because if they were, they would have certainly raised objections to the N25 million figure,” he said. On his part, the President of the Association of Small Business Owners of Nigeria (ASBON), Dr. Femi Egbesola, said while the move is a great one and provides some ray of hope of better days ahead for MSMEs, the figure is too small.
“Going by current realities with the devaluation of the naira and current economic realities, the N25 million turnover is rather too low. We recommend that the turnover benchmark be increased to reflect the prevailing economic situation, perhaps to N75 million or more.
“We also encourage the government to provide enough information and publicity to inform MSMEs on this new policy and educate them on how to take advantage of it. We eagerly look forward to more interventions in the MSME ecosystem.”
Also reacting, the Director General of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Sola Obadimu, said though the limit might be too small, it is, however, a good start.
National Vice President of the National Association of Small Scale Industries (NASSI), Segun Kuti-George, said the regulation is not new.
“It has always been there, adding that they expected that with the depreciation in the value of the naira, the benchmark should have been reviewed upwards”, he said.
A professor of accounting and financial development at Lead City University, Ibadan, Godwin Oyedokun, said the withholding tax regulations that exempt small businesses were certainly to relieve financial pressure on smaller enterprises.
“However, given the current economic climate and the depreciation of the naira, many might argue that N25 million is indeed on the low end,” he said.
He said raising the threshold to at least N50 million could potentially provide a broader safety net for small businesses, allowing them more room to grow and invest without the burden of withholding tax.
“This adjustment could accommodate rising costs and inflation, helping small businesses remain competitive. Ultimately, the effectiveness of such regulations should consider the unique challenges faced by businesses in today’s economic environment,” he said.
