How Nigeria’s new tax reforms will transform local supply chains
By Salisu Uba, PhD, FCIPS
Nigeria has embarked on a significant fiscal reform with the introduction of the Deduction of Tax at Source (Withholding) Regulations 2024, effective from 1 July 2024. Signed into law by the Minister of Finance, these regulations dismantle a nearly five-decade-old withholding tax (WHT) regime, signalling a pivotal shift in the nation’s economic structure. For supply chain and business stakeholders, understanding and capitalising on these changes is crucial for fostering sustainable, value-added growth in an evolving market.
Streamlining Taxation to Boost Supply Chain Efficiency
The new WHT regulations offer significant rate reductions that directly benefit the supply chain ecosystem. Notably, the WHT rate for payments to Nigerian companies for professional, management, technical, and consultancy services has been halved from 10% to 5%. This reduction eases financial pressures and improves liquidity, enabling businesses to reinvest savings into key areas such as logistics, technology, and workforce development. With enhanced cash flow, supply chains become more agile, swiftly responding to market demands while reducing operational bottlenecks.
Additionally, the WHT rate for payments related to other services and the supply of goods or materials to Nigerian residents has decreased from 5% to 2%. In the supply chain sector, where margins are often tight, this reduction helps lower overheads. It allows companies to reallocate resources to optimise inventory management, strengthen supplier relationships, and invest in advanced supply chain capabilities. These savings can translate into more competitive consumer pricing, strengthening market positioning and driving business growth.
Fostering Sustainable Infrastructure Development
Infrastructure is vital to the smooth functioning of supply chains, and the new regulations demonstrate the government’s commitment to supporting this critical area. The WHT rate on payments to Nigerian residents for constructing roads, bridges, buildings, and power plants has been slightly reduced from 2.5% to 2%. While modest, this adjustment reflects a broader strategy to enhance Nigeria’s infrastructure. Improved infrastructure facilitates more reliable and efficient logistics, reducing transit times and minimising disruptions, which bolsters supply chains’ overall resilience.
Empowering Small and Medium Enterprises (SMEs)
Small and medium enterprises (SMEs) are the backbone of Nigeria’s supply chain, serving as key suppliers and service providers. The new regulations offer exemptions for companies and unincorporated bodies with a turnover of 25 million Naira or less on transactions up to 2 million Naira, provided the supplier has a Tax Identification Number (TIN). This exemption reduces the administrative burden on SMEs, encouraging formalisation and integration into the broader supply chain framework and tax system. These reforms promote diversity and resilience by supporting SMEs, ensuring smaller players thrive alongside more giant corporations and contributing to a more robust, dynamic supply chain ecosystem.
Enhancing Compliance and Transparency
The extension of WHT liability to payment agents and the requirement to issue receipts for withholding tax deductions are vital steps towards greater transparency and accountability within the supply chain. These measures ensure tax obligations are met promptly and accurately, reducing the risk of disputes and fostering trust among business partners. For procurement professionals, enhanced compliance simplifies auditing and mitigates the risk of financial discrepancies, enabling more efficient and reliable supply chain management. Transparent tax practices also enhance Nigeria’s business ethics and foreign investment.
Strategic Adaptation: Navigating the Transition
Adapting to the new WHT regime requires careful planning and proactive engagement. Supply chain experts should thoroughly reassess existing contracts to ensure they align with the revised tax obligations. This may involve renegotiating terms with suppliers and partners to accommodate the new WHT rates and compliance requirements. Working closely with tax advisors and leveraging expert guidance can help businesses navigate the reforms’ legal, tax, and financial implications, minimising disruptions and capitalising on the benefits of the new regulations. Proactive adaptation will turn potential challenges into greater efficiency and competitive advantage opportunities.
Sustainable Value Creation in the Supply Chain
The overarching objective of Nigeria’s WHT reforms is to create a fairer and more efficient tax environment that supports sustainable business growth. For the supply chain sector, reduced tax burdens enhance operational efficiency, while support for SMEs and infrastructure development lays the foundation for long-term resilience and innovation. Businesses can invest in sustainable practices such as green logistics solutions and supply chain transparency initiatives by lowering costs and improving cash flow. These investments contribute to environmental sustainability, build competitive advantage, and create added value for stakeholders. I also encourage the government to look into its supply chain to increase transparency, promote equal opportunities, prioritise local procurement of all goods and services, and digitally transform the function across MDAs.
Conclusion
Nigeria’s Deduction of Tax at Source (Withholding) Regulations 2024 represents a transformative step in modernising the country’s tax framework. The implications for supply chains are profound, offering opportunities to enhance efficiency, support small businesses, and invest in sustainable growth. By strategically adapting to these changes, companies can transition smoothly, leveraging the new tax environment to build more resilient, value-driven supply chains.
As Nigeria continues to refine its economic policies, the supply chain sector stands to benefit from a more equitable and supportive fiscal landscape, driving sustainable growth and long-term prosperity. The Federal Government and the Presidential Fiscal Policy and Tax Reforms Committee, led by Taiwo Oyedele, deserve commendation for their forward-thinking approach. These reforms alleviate immediate financial pressures on businesses and pave the way for a more dynamic, resilient, and value-added supply chain ecosystem in Nigeria.
Salisu Uba, PhD, FCIPS, is a Fellow of the Chartered Institute of Procurement and Supply Chain UK and Founder of NatQuest – a supply chain technology company based in the UK.