Federal Government Enacts Sweeping Tax Reforms to Modernise Nigeria’s Fiscal System
The Federal Government of Nigeria has ushered in a new era of tax administration with the implementation of the 2024 Withholding Tax Regulations, a landmark reform designed to simplify compliance, reduce inefficiencies, and foster economic growth.
Approved by President Bola Tinubu in July and officially gazetted in October 2024, the regulations took effect on January 1, 2025. The updated framework, formally titled the “Deduction of Tax at Source (Withholding) Regulations, 2024,” represents a critical step in the government’s effort to modernise the country’s tax system.
Speaking on New Year’s Day, Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, hailed the commencement of the reforms as a pivotal moment for Nigeria’s fiscal policy. “As part of the ongoing fiscal policy and tax reforms, the 2024 Withholding Tax Regulations… take effect today,” Oyedele announced on X (formerly Twitter).
Relief for SMEs and Critical Sectors
The new regulations introduce targeted exemptions and reduced rates to support small and medium enterprises (SMEs), manufacturers, producers, and farmers—key pillars of Nigeria’s economy. SMEs are now exempt from withholding tax compliance, a move aimed at easing financial and administrative burdens, while businesses with low-profit margins will benefit from reduced withholding tax rates to improve cash flow and lower operational costs.
Manufacturers, producers, and farmers are similarly exempted from withholding tax obligations under the updated framework, reinforcing government efforts to bolster these vital sectors for sustained economic growth.
Simplification and Transparency
The regulations also address long-standing inefficiencies in Nigeria’s tax system. By clarifying the timing of deductions, definitions of taxable income, and procedures for obtaining tax credits, the reforms aim to eliminate compliance barriers. These measures are expected to curb tax evasion, reduce opportunities for avoidance, and enhance transparency in remittances.
In addition, statutory deductions like contributions to the National Housing Fund and Pension Reform Act remain intact, ensuring continuity in critical areas while simplifying the broader tax framework.
Balancing Equity in Personal Income Tax
Alongside the withholding tax reforms, the government is pursuing adjustments to the personal income tax system to address fiscal inequities. The proposed changes, which include raising the tax-free threshold and introducing relief for low- and middle-income earners, aim to reduce the regressive nature of the current structure.
High-income earners will face higher rates, with those earning over ₦50 million annually subject to a top rate of 25%, up from the current 24%. For individuals earning less than ₦1.7 million monthly, however, the reforms promise reduced obligations, with over 90% of workers in the public and private sectors expected to benefit.
“These thresholds will result in a fairer, more progressive system while still ensuring that ultra-high-net-worth individuals contribute their share,” Oyedele noted.
A Vision for a Fairer Tax Landscape
The 2024 Withholding Tax Regulations mark a decisive effort by Nigeria to modernise its fiscal system, reduce the burden on small businesses, and foster economic inclusion. With implementation underway, the reforms are set to reshape the tax landscape, balancing the need for government revenue with the imperative to support economic growth and social equity.
