By Peter Egwuatu

Kreston Pedabo, one of the major accounting firms in the country, has raised concerns about the recently updated Withholding Tax (WHT) regulations in Nigeria, highlighting potential uncertainty for taxpayers.

In an analysis provided by Olubunmi Kuteyi, Partner of Tax Services, and Oluwasanmi Ogunsanwo, Manager of Tax Advisory, the firm pointed out several ambiguities in the new regulations that could lead to confusion among taxpayers if not quickly addressed.

In July 2024, the Federal Government released an updated version of the WHT regulations to replace the longstanding 1997 guidelines. However, the initial publication of the new regulations, which appeared on the letterhead of the Honourable Minister of Finance and Coordinating Minister of the Economy, was criticized for being unofficial and lacking proper distribution. The situation has since been rectified with the formal publication of the document in an official gazette, along with minor revisions to the content.

While the updated regulations aim to simplify Nigeria’s withholding tax system, Pedabo has identified issues that could hinder their effectiveness. 

The firm warned that if these issues are not resolved, they could create challenges for taxpayers and the broader tax administration.

One of the primary issues raised by Pedabo relates to the conflicting commencement and implementation dates in the WHT regulations. According to the firm, the regulations state that they are to take effect on 30 September 2024, while their official implementation is set for 1 January 2025.

This discrepancy, the firm said May cause confusion, particularly for taxpayers who may be unsure of when to start complying with the new guidelines. 

While the error may be a result of drafting oversight, Pedabo emphasised that the provisions must be clarified to ensure smooth adoption.

Pedabo also noted that the updated regulations allow for early adoption from 1 July 2024, but the guidelines surrounding the option for early application are not clearly defined. This lack of clarity could lead to uncertainty among taxpayers, particularly regarding the administrative procedures necessary to apply the new regulations ahead of the official start date.

“The current provisions place the administrative burden of early application on the tax authorities, leaving taxpayers in a state of uncertainty,” Pedabo said. “This has only been compounded by a recent Public Notice issued by the Federal Inland Revenue Service (FIRS), which lacks clear guidance for those who have already begun complying with the July version.”

In response to the release of the updated regulations, the FIRS issued a Public Notice clarifying that the 2024 WHT regulations would officially take effect from 1 January 2025. Until then, the 1997 WHT regulations would remain in force. 

However, Pedabo raised concerns that the notice does not provide clarity for taxpayers who had already started implementing the new rates from July 2024.

“There are now questions over the status of deductions already made under the new rates since July,” Pedabo said. “Would tax authorities refund taxpayers where higher rates have been deducted, or would they hold taxpayers liable where reduced rates have been applied ahead of schedule?”

To avoid falling afoul of the tax authorities, Pedabo strongly recommended that all taxpayers, both corporate and individual, maintain meticulous records of all qualifying transactions and payments. 

This is especially important for companies that have already started complying with the new regulations as of July, who may face reviews or audits by the FIRS. 

The firm advised taxpayers to ensure continued compliance until further clarifications are issued by the relevant authorities.

“Proper record-keeping and compliance are critical to avoid any potential liabilities or disputes with the tax authorities,” Pedabo said. “Companies that have started applying the new rates must remain vigilant and prepared for any reviews.”

To address these emerging challenges, Pedabo called on the Ministry of Finance and the FIRS to convene a stakeholder engagement meeting. Such a forum would, according help facilitate the smooth transition of taxpayers into the new WHT regime, and provide an opportunity to address any concerns or uncertainties that have arisen since the initial release.

“Taxpayers and businesses need clarity on these regulations, and a stakeholder engagement would be a critical step in ensuring a seamless transition,” the firm concluded.

As Nigeria continues its efforts to streamline its tax administration and improve compliance, the organisation insisted that it is crucial that regulatory changes are implemented in a way that minimizes confusion and maximizes transparency.