The Federal Government has categorized all electricity companies including the generation and distribution companies (GenCos and DisCos) as part of those exempted from payment of withholding tax in the country.
This information is contained in the new withholding tax regulation document signed by the Minister of Finance, Wale Edun, a copy of which was seen by Naijaonpoint on Sunday.
The new withholding tax regulation was proposed by the tax and fiscal policy committee led by Taiwo Oyedele and took effect from July 1, 2024.
According to the document, the electricity and gas companies are categorized as “manufacturing” and “production”, therefore exempted from the withholding tax.
Under the Interpretation section of the document, it stipulates the following:
“In these Regulations, a word or an expression has the meaning assigned to it in the Act unless otherwise defined or where the context otherwise requires:
According to the Federal Inland Revenue Service (FIRS), Withholding Tax (WHT) serves as a prepayment of Income Tax, deducted at rates between 5% and 10% depending on the transaction.
Withholding tax had been introduced into Nigeria’s tax system in 1977 as an advance payment of income tax on specified transactions.
However, the chairman of the tax and fiscal policy committee, Mr. Taiwo Oyedele, said the tax system provided the government with a steady revenue stream and helped curb tax evasion, however, the regime had expanded over time, becoming increasingly complex and burdensome.
According to him, the complexity led to ambiguities regarding compliance, eligible transactions, applicable rates, and the timing of remittance.
He said the newly approved regime aimed to address these challenges and introduce several key changes.
Oyedele said SMEs are now exempt from withholding tax compliance, reducing their administrative burden and allowing them to focus on growth.