UNDERSTANDING WITH-HOLDING TAX (WHT) IN NIGERIA

UNDERSTANDING WITH-HOLDING TAX (WHT)  IN NIGERIA

UNDERSTANDING WITH-HOLDING TAX (WHT) IN NIGERIA -  Therefore, you must know about: withholding tax rates in Nigeria, its importance and administration, average withholding tax rates in Nigeria 2016, withholding tax in Nigeria 2017, withholding tax exemption list in Nigeria, why withholding tax, withholding tax on rent in Nigeria, difference between vat and withholding tax in Nigeria, firs circular on withholding tax, why withholding tax.


You need to know that, With-holding Tax is a very important tax matter in any tax regime and jurisdiction. It is important both to government and you the tax payer. The government see it as a way of catching some taxes that could have been lost while some  tax payers see it as additional tax. In the light of these many of you get confused on what withholding tax is, how much of it to be paid,  how it is administered and the benefits to the tax payer.

To this effect, this article will clear  all of these confusions. In the end you could send in your questions or make comments as feedback through the comment platform. Your feedback is an encouragement to the owners of this blog.

UNDERSTANDING WITH-HOLDING TAX (WHT)  IN NIGERIA


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What Then is With-Holding Tax?

Withholding Tax in Nigeria as the name implies,  is  a tax with-held at source. It  is  an advanced payment of tax due on the transaction being done at the time of its deduction.
As an advanced tax payment it is used later to reduce the amount of tax payable by such tax payer. Because it is deducted at source, the tax payer has no option but to pay it. The deducting party is compelled under law  to make such deductions at source or be liable to penalties.

READ ALSO: TAX INCENTIVES IN NIGERIA ENCOURAGES INVESTMENTS

When is WHT a final Tax?:

For certain taxpayers, especially, non-resident persons, WHT on their incomes become final tax payments. For some incomes too, such as franked investment incomes e.g. dividends, such deductions become final tax on such incomes.


ENABLING LAWS:


In Nigeria, the enabling laws are:
Companies Income Tax Act, Cap. C21,LFN 2004, for companies and,
Personal Income Tax Act, Cap. P8,LFN 2004 for individuals.

UNDERSTANDING WITH-HOLDING TAX (WHT)  IN NIGERIA


WITH-HOLDING TAX IN NIGERIA
WHT BENEFITS

Withholding Tax Rates in Nigeria 


WHT Rates  as  contained in the Acts are as follows:


Type of Transaction                                       Companies                           Individuals
                                                                             %                                     %
Royalties                                                               10                                  10
Rents                                                                    10                                  10
Dividends                                                               10                                 10
Interest                                                                  10                                10
Commission                                                             10                                5
Consultancy fees                                                      10                                5
Management Fees                                                    10                                 5
Directors fees                                                         N/A                                5
Building Construction                                                5                                  5
Contract Supplies.                                                    5                                   5


Withholding Tax Administration in Nigeria


Withholding taxes from companies and those from residents of the  Abuja, FCT, members of the Armed Forces, Police Force, and Officer of Nigerian Foreign Services are paid to Federal Inland Revenue Service, while those of the individuals are paid to the relevant States Internal Revenue Service where the particular taxpayer resides.

When these payments are received by the relevant tax authority, such receiving authority issues a note known as WHT Credit Note in favour of the taxpayer who actually suffered the deduction from its payments.

These simple rules as shown above must be obeyed by every taxpayer.The non-adherence to these account for why many tax payers evade tax.  Look at it; if an individual does not pay  a 5% WHT on his income of N100,000.00 which is N5,000,00, if at the end of the tax year this income attracts a gross tax of  N12,000.00, it becomes too much for the taxpayer to pay in bulk. He simply thinks of a way not to pay at all or to reduce it. But if he had paid the WHT tax of N5,000.00 earlier, it will simply pay the outstanding which is only N7,000.00.

UNDERSTANDING WITH-HOLDING TAX (WHT)  IN NIGERIA


ALSO READ: PUBLIC WRONG VIEW OF TAX AVOIDANCE AND TAX EVASION

It is understandable that there are some technicalities involved in WHT processes which require some professional attentions, a willing taxpayer will always have an Accountant to help out. If you don’t have one in your system already, get one today at a minimal cost.Contact us.
The WHT provisions seek to collect taxes that may otherwise have been lost through evasion and/or avoidance.  The residence of the taxpayer is generally not relevant for the purpose of determining liability to tax on the application of WHT, but it is important to consider whether the provider/supplier of the goods or services is liable to Nigerian tax. In relation to the table above, these income are subject to WHT in Nigeria.

 ELEMENTS OF WHT

Rent includes rental income on both real and personal property. As a general rule, income on a property (rent, hire or lease payments or rights (royalties) situated in Nigeria is liable to tax in Nigeria. Where a person rents or hires property/services from another, WHT at the rate of 10% will apply. 
Interest is income from investments of every kind. WHT is applicable to income from government securities and income from bonds or Treasury bills. Interest on loans paid by a Nigerian company is often not subject to WHT. 
Dividends is income from investment, mostly shares. The income is subject to tax whether it is received by a Nigeria company or a non-resident company. The tax  is  regarded as a final tax, but corporate bodies are allowed to recoup WHT deduction where the dividend is to be redistributed as Franked Investment Income (FII). 
Royalty  is payment of any kind as a consideration for the use of or the right to use any patent, trade mark or right , It is  unearned income which accrues to the owner from past endeavours. Permission must be obtained before it can be used. It is such permissions that attract royalty payments.
Consultancy/Professional/Management/Technical Services are specialized services rendered by persons with the required knowledge and skills. The mere fact that services are provided by a company which has consultancy as part of its name does not by itself render such service as consultancy. The real content of the services being provided must be examined and if it amounts to a consultancy service, then the appropriate rate would apply; the same treatment applies to Professional/Management services.

All aspects of Building, Construction and Related Activities, including laying of pipelines, maintenance activities and service charges, drilling and related activities properly fall under this classification.  

                    UNDERSTANDING WITH-HOLDING TAX (WHT)  IN NIGERIA

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