FG categories companies exempted from Withholding Tax

The Federal Government has announced that all electricity companies, including Generation and Distribution Companies (GenCos and DisCos), are now exempt from paying Withholding Tax in Nigeria.

This change was formalized in a new Withholding Tax regulation document signed by the Minister of Finance, Wale Edun. The regulation, proposed by the Tax and Fiscal Policy Committee led by Taiwo Oyedele, became effective on July 1, 2024.

The document clarifies that “electricity and gas companies are categorized as manufacturing and production and therefore exempted from Withholding Tax.”

The Federal Inland Revenue Service (FIRS) explained that Withholding Tax (WHT) serves as a prepayment of Income Tax, deducted at rates ranging from 5 to 10 percent depending on the transaction.

Withholding Tax was introduced into Nigeria’s tax system in 1977 as an advance payment of Income Tax on specific transactions. Oyedele noted that while the tax system has provided a steady revenue stream and helped reduce tax evasion, it has become increasingly complex and burdensome over time.

This complexity has led to ambiguities regarding compliance, eligible transactions, applicable rates, and the timing of remittance.

The newly approved regime aims to address these challenges and introduce several key changes to simplify the system.