Introduction
Withholding Tax ("WHT") is an
advance tax payment which is deducted and withheld from any income or
disbursement due to a taxable person or to a taxable corporation, for onward
remittance to the relevant tax authority, against a final income tax liability.
WHT Deducted by Companies
Section 78 of the Companies' Income Tax Act (as
amended) ("CITA") requires that where a company makes a payment to
another company or to an individual, either as interest, rent, dividend, etc,
such a company shall at the time of making such payment deduct WHT of
10% of the gross amount that is paid, and remit such deducted
and withheld tax to the relevant tax authority
.
WHT Deducted on Non-Resident Companies
Any tax deducted from the income due to a non-resident
company or individual is deemed to be a final tax on such non-resident's income
earned from its Nigeria sources provided that the non-resident company does not
have a fixed base or permanent establishment for doing business in Nigeria.
WHT Deducted on Individual (Sole
Proprietorship/Partnership Business)
Sections 69-75 of the Personal Income Tax (Amendment)
Act ("PITA") mandatorily requires that where any rent, interest or
royalty, dividend or directors fees is paid by a company to an individual, or
where such income is paid by an individual to another individual, the payer of
such income must deduct, and remit within thirty (30) days of the deduction to
the tax authority of the State where the recipient of the income resides.
The rate of the WHT to be deducted and remitted for
interest income is 10% of the gross interest income; and for royalty income,
the rate of WHT is 5% of the royalty income.
WHT Deducted from Non-Resident Individual
Non-resident individuals who receive income in Nigeria
are entitled to 10% WHT deduction that is withheld from such income to be a
final tax on such Nigerian earned income provided they are not resident in
Nigeria.
Exemption from Withholding Tax
Dividend, interest, rent or royalty
derived from outside Nigeria but brought into Nigeria through approved government
channels are exempted from withholding tax provisions in Sections 69, 70, 71
and 72 of PITA.
Penalties for Failure to Deduct WHT
Any Company obligated to deduct,
withhold and remit immediately this WHT, in the currency of the transaction
from which the deduction was effected, but who fails to do so, or deducted WHT
and, fails to pay it over to the Federal Inland Revenue Service within
twenty-one (21) days from the date the obligation to withhold or deduct the
advance tax arose, shall be guilty of an offence and liable on conviction to
(a) pay in addition to the tax not withheld or where withheld, is not remitted;
(b) a penalty of one hundred per cent (100%) per annum on the advance tax
withheld or not withheld, or where withheld the advance tax is not remitted; in
addition to (c) interest at the prevailing commercial bank lending rates on the
advance tax and the penalty for not remitting the advance withheld tax.
Section 74 of the PITA provides that
where a taxable individual who is obligated to deduct, withhold and remit an
advance tax, as stated above, fails to deduct or having deducted or withheld
this advance tax, fails to remit the tax to the relevant tax authority within
the 30 days from when the tax was required to be deducted or withheld, such a
taxable person shall be guilty of a tax offence which on conviction carries the
following penalties:-
a) A Fine of N5,000 or ten per cent (10%) of the
amount of the advance tax due, whichever is higher of the two, in addition to;
b) The tax deductible or deducted; plus
c) Interest on both amounts at the prevailing commercial bank lending rates
The Companies Income tax (Rates etc., of Tax Deducted at Source
(Withholding Tax)) Amendment Regulations, 2015.
The Minister of Finance issued an official gazette on 17th December 2014
for the Amendment of the Schedule to the Companies Income Tax (Rates etc., of
Tax to be Deducted at Source (Withholding Tax)) Amendment Regulations.
These Regulations may be cited as the Companies Income Tax (Rates etc.,
of Tax Deducted at Source (Withholding Tax Amendment Regulations)), 2015.
The amendment reduces the rate of withholding tax on building,
construction and related activities (excluding survey, design and deliveries)
from the old rate of 5% to 2.5%, effective 1 January 2015.
Olatunji is a Manager (International Tax & Advisory Services) with Saffron Professional Services(Member firm of Geneva Group International), Lagos, Nigeria.E-mail:Oabdulrazaq@saffron-ng.com,Oabdulrazaq11@gmail.com
