WHAT IS WITHHOLDING TAX?
Withholding tax (WHT), also called a Retention Tax in some jurisdictions is a tax required by law to be withheld or deducted from the payment due to the supplier of such good or service by the buyer of such good or service . The buyer in this case acts as an agent of the government who in turn requires the buyer to remit the deducted tax to the government on behalf of the supplier. It can be said to be an advance payment of income tax and an indirect source of taxation deducted at source from the payments due on invoices of the tax payer(supplier). It is basically used as a means to combat tax evasion, by making sure that more persons are brought into the tax net through disclosure from the larger taxpayers to whom they supply goods or services. Withholding tax is required by law but has no legislation of its own; it is only used as a mechanism for the collection of other taxes. The Sections 60, 61, 62 and 63 of the Company Income Tax (CITA) and Sections 69 – 72 of the Personal Income Tax (PITA) are the applicable Laws on withholding tax in Nigeria
WHO IS SUBJECTED TO WITHHOLDING TAX
All taxable persons (companies or individuals) whose incomes are liable to income tax are subjected to withholding tax. However, exempt entities, such as educational institutions, Government Ministries, Parastatals and other Agencies of government, are agents for the collection of WHT. They are to deduct WHT on any payment made to a taxable body and remit same to the relevant tax authority.
WITHHOLDING TAX RATE TABLE
The table shows applicable WHT rate for taxable persons
| TYPES OF PAYMENT | COMPANIES | INDIVIDUALS |
| Dividends, Interest and Rent | 10% | 10% |
| Directors fees | 10% | 10% |
| Royalties | 15% | 15% |
| Commission, Consultancy, Professional, Technical and management fees | 10% | 5% |
| Construction, Building contract | 5% | 5% |
| Contract of supplies and Agency agreements | 5% | 5% |
REMITTANCE OF WITHHOLDING TAX
Taxes withheld must be added up on monthly basis and remitted directly to the Federal Inland Revenue Service for Corporate Organizations or State Internal Revenue service for individuals or business enterprises. The due date for remitting WHT returns is 21st day of every month following the month in which the deductions were made. Failure to withhold, remit what has been withheld or late and non-remittance of WHT will attract a penalty which would include a fine and interest charge.
WITHHOLDING TAX CREDIT NOTE
The Revenue Authority is required by law to issue a Withholding Tax Credit Note for each Tax withheld and remitted on behalf of a Tax payer (supplier) and this would be reflected in the account of the Tax payer. The Withholding Tax Credit Note will serve as proof of advance payment of Income tax to the Government and would be used to reduce Income tax payable by a Tax payer.
EXEMPTIONS FROM WITHHOLDING TAX
Transactions that are exempted from WHT include; Direct purchase across the counter, direct purchase of raw materials from supplier as different from contract of supplies, sale in the ordinary course of business, all imported goods, inter-bank interest, income exempted from income tax, claims in insurance business, interest on bonds, dividends redistributed by holding companies. Telephone bills are also not subjected to withholding tax.
Non-resident companies: Non-resident companies are not empowered to deduct any type of WHT. These categories of enterprises are practically outside the regulatory monitoring and control of the FIRS or State IRS. It will be impracticable for revenue office to inspect the accounting books of these companies to confirm due deduction and remittance of WHT.
The WHT system has been a source of revenue to Government. It enhances the collection efforts of Tax Authorities and it make sure that revenue is generated in advance. Hence, It is essential that the system should continue to be improved upon.
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