FG exempts electricity companies from withholding tax
The federal government has made an important decision to exempt all electricity companies, such as Generation and Distribution Companies (GenCos and DisCos), from the payment of Withholding Tax in the country.
The exemption was outlined in the new Withholding Tax regulation document, signed by the Minister of Finance, Wale Edun.
This regulation was put forward by the Tax and Fiscal Policy Committee, spearheaded by Taiwo Oyedele, and came into effect starting July 1, 2024.
Under this new regulation, electricity and gas companies are classified as “manufacturing” and “production” entities, therefore qualifying for exemption from Withholding Tax.
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The Federal Inland Revenue Service (FIRS) explains that Withholding Tax serves as a prepayment of Income Tax, with deduction rates varying between 5 and 10 percent depending on the transaction.
Introduced into Nigeria’s tax system in 1977, Withholding Tax was designed as an advance payment of Income Tax on specific transactions. Oyedele noted that while the tax system has been effective in providing the government with revenue and combating tax evasion, it had grown increasingly complex and burdensome over time.
He highlighted that the complexities had created uncertainties around compliance, eligible transactions, applicable rates, and the timing of remittance.
The newly approved regime aims to address these challenges by introducing key changes to streamline and clarify the withholding tax system.
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