The federal government of Nigeria through the Hon.Minister of finance approved the implementation of deduction of tax at source (withholding) regulation of 2024, to be effective from 1st January, 2025.
The regulations creates a consolidated Withholding tax (WHT) regime for Company Income tax (CIT), Capital Gain Tax (CGT) Petroleum Profit Tax (PPT) and Personal Income Tax (PIT) which superseded all previous regulations. The highlight of this regulations are as follows;-
- The objectives of the regulations are; –
- To set out the rules for deduction of tax at source from payments to taxable persons under the capital gain tax (CGT) Act, the company income tax (CIT) Act, petroleum profit tax (PPT) Act, and personal income tax (PIT) Act in relation to specified transactions.
- Remove complexities in the deduction of tax at source.
- Reduce the rates of deduction for sectors with low margins.
- Provide exemptions for small business and manufacturers.
- Promote the ease of tax compliance and administration.
- Curb tax evasion.
- Reduce arbitrage between corporate and non-corporate business structure.
- Adopt global best practices in the deduction of tax at source.
- The regulations, are application to taxes deductible at sources from payments to taxable persons under the relevant acts.
- Under the reputations, the following persons are required to deduct tax at source on eligible transactions;
- A body corporate or unincorporate, other than individual
- A government ministry, department, or agency
- A statutory body
- A public authority
- Any other institution, organization, establishment or enterprise including those exempt from tax and
- A payment agent representing any person under paragraphs (a) – (e) of the sub-reputation
- A deduction made from a payment shall not be;
- Regarded as a separate tax or an additional cost of the contract or transaction or
- Included in the contract price, but will be treated as an advance or final tax of the supplier as the case may be.
- The obligation to deduct at source shall arise at the earlier of when
- Payment is made on
- The amount due is otherwise settled
- Where the payment due, is between related parties deduction shall be made at the time of payment or when the liability is recognized, whichever is earlier.
- The amount deducted on any payment to a non-resident person shall be the final tax, except when the income is liable to further tax by reason of a taxable presence in Nigeria.
- The amount deducted at source shall be remitted to the relevant tax authority as follows;
- Payment to federal inland revenue services (FIRS) shall not be later than the 21st day of the year following the month of payment and
- In the case of payment, to the state Inland Revenue service.
- With respect to capital gain tax and pay- as- you- earn not later than the 10th day of the month following the payment, and
- With respect to any other deduction, not later than 30th day of the month following the month of payment
- The person making deduction at source shall submit a return to the relevant tax authority with evidence of remittance of the amount deducted in the format prescribed to the relevant tax authority from time to time.
- The schedule of the return shall be in the following format;
- Name and address of the person from whom the amount was deducted
- TIN, national identification number (NIN), RC number or its equivalent.
- Nature of transaction in respect to which the payment was made
- Gross amount paid or payable
- Amount of tax deducted
- Calendar month to which the payment relates.
- A person who makes a deduction from payment shall upon remittance to the relevant authority, issue a receipt for the tax of the amount deducted at source containing the following information;
- Name, address and the TIN of the person from whom the deduction was made. But where the beneficiary has no TIN, such a person shall provide; in the case of;
- i)an individual, a NIN, and
- II)a company, an RC number
- Nature of transaction in respect of which the payment was made;
- Gross amount payable or settled
- Amount deducted and
- Month to which the payment relates.
- A person from whom a deduction has been made may submit the receipt to the relevant tax authority as evidence of the amount deducted for the purpose of claiming tax credit for the amount so deduction.
- Where a person issues a receipt for any amount deducted and yet to be remitted to the relevant authority, the beneficiary shall nevertheless, be credited by the relevant tax authority, and any amount unremitted shall be treated as the tax liability of the person who made the deduction, and shall be recoverable with applicable penalty and interest.
- Where a person requires to make a deduction at source fails to do, is liable to a penalty prescribed in section 40 of the federal Inland Revenue services (Establishment) act of section 74 of the personal income tax Act as may be applicable.
- Where a person who is required to deduct at source fails to do so and has paid such a portion representing the required deduction to the recipient, only an administrative penalty shall be due and payable.
- Where a person has deducted an amount at source and failed to remit to the relevant tax authority, the amount so deducted in addition to an administrative penalty and annual interest shall be payable in line with the application legislation.
In Conclusion, the regulations has established a new system for ensuring compliance with the obligation to deduction at source and remittance which makes tax regime more business friendly in Nigeria.
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