2025, Vol. 8, Issue 2

author(s)
Cordilia Eke, Oladapo Olatinsu and Adaugo Queeneth Uwakwe

abstract
Withholding tax (WHT) assumes a critical function in augmenting fiscal revenue and enhancing compliance in nations characterized by developing economies. This mechanism reallocates the responsibility of tax collection from individual taxpayers to intermediary entities such as employers, financial institutions, and governmental bodies, thereby facilitating the reduction of tax evasion and securing revenue at its source. Nonetheless, despite the efficacy of WHT, numerous low- and middle-income countries (LMICs) encounter obstacles including structural inefficiencies, protracted refund processes, and irregular enforcement. This review meticulously examines the framework, compliance modalities, and enforcement capabilities associated with WHT systems in developing nations. It investigates the influence of design coherence, digital integration, and institutional governance on compliance outcomes and equity for taxpayers. Utilizing a descriptive-analytical approach, the study aggregates data from esteemed international organizations such as the International Monetary Fund (IMF), Organisation for Economic Co-operation and Development (OECD), African Tax Administration Forum (ATAF), and the World Bank for the period 2019-2024. The descriptive analysis elucidates WHT frameworks alongside digital reforms, while the analytical component identifies performance deficiencies, behavioral determinants, and policy trade-offs that impact compliance and fairness. The results suggest that nations that have assimilated WHT with digital platforms such as e-invoicing, real-time reporting, and third-party data analytics have experienced substantial increases in compliance rates and reductions in tax gaps by 15-30%. However, persistent issues such as excessive withholding, refund backlogs, and inadequate capacity among agents continue to exist. The efficacy of WHT systems is more closely correlated with administrative coordination, data governance, and taxpayer trust than with the statutory framework itself. Conclusion: WHT frameworks have proven to be pivotal in augmenting fiscal capacity and mitigating evasion in developing economies. Nevertheless, their enduring success is contingent upon the simplification of rate structures, enhancement of refund processes, adoption of digital enforcement mechanisms, and the promotion of institutional transparency. Reforms that align with the cooperation frameworks established by the OECD and the United Nations possess the potential to transform withholding from an instrument of coercion into a reliable means of ensuring equitable and accountable taxation.