On July 1, 2024, the Federal Ministry of Finance introduced the Deduction of Tax at Source (Withholding) Regulations 2024, setting forth new rules for deducting taxes from payments to taxable persons under the Companies Income Tax (CIT) Act, Petroleum Profits Tax (PPT) Act, and Personal Income Tax (PIT) Act. These regulations took effect on the same day.

Key Highlights of the Regulations

1. Issuance of Tax Receipts for Ease of Credit Utilization: The regulations require those making tax deductions to issue a tax receipt to the supplier for the amount withheld upon remittance of the tax to the relevant authority. This receipt must include the supplier’s name, address, Tax Identification Number (TIN), nature of the transaction, gross amount, amount deducted, and the payment month. This ensures suppliers can obtain and utilize WHT credits even if the tax is not yet remitted.
2. Encouraging Compliance and Curbing Evasion: Transactions with recipients lacking a TIN will attract double the standard WHT rate for non-passive income, ensuring vendor registration with a unique TIN. Non-compliance, such as failure to deduct or remit tax, will result in recovery of the tax with penalties and annual interest. Full payments without deduction will incur administrative penalties and one-off annual interest on the non-deducted amount.
3. Exemption for Small Businesses: Small businesses and unincorporated entities with annual turnovers less than ₦25 million are exempt from deducting WHT on transactions, provided the supplier has a valid TIN and the transaction value is ₦2 million or less within a calendar month, reducing compliance burdens on small companies.
4. Clarification on WHT Deduction: WHT is not an additional tax or cost. It should not be included in the contract cost but treated as the supplier’s tax. Contracts should not state consideration as “net of withholding tax” to prevent shifting the tax burden to service recipients.
5. Simplified Descriptions and Reduced Rates:
   • Commission, consultancy, technical, management, and professional fees are now subject to 5% WHT for resident recipients, down from 10%, and 10% for non-residents.
   • Supply of goods or materials (excluding manufacturers/producers) is reduced to 2% WHT from 5%.
   • Other service supplies are subject to 2% WHT for residents.
   • Director’s fees for residents increased to 15% and for non-residents to 20%.
   • Winnings from lottery, gaming, and reality shows are subject to 5% WHT for residents and 15% for non-residents, effective October 1, 2024.
6. Timing of Deduction and Remittance: WHT should be deducted at payment or liability settlement, except for related parties, where it should be at the earlier of payment or liability recognition. WHT payment to FIRS is due by the 21st of the following month, and to SIRS by the 30th, except for CGT and PAYE, which are due to SIRS by the 10th of the following month. Templates for monthly WHT schedules and tax receipts are provided in the Second and Third Schedules, respectively.
7. Exemptions from WHT: The regulations exempt specific transactions, including:
   • Compensating payments under a Registered Securities Lending Transaction.
   • Distribution/dividend payments to Real Estate Investment Trusts or Companies.
   • Across-the-counter transactions.
   • Interest and fees paid to Nigerian banks by direct debit.
   • Payments exempt from tax.
   • Out-of-pocket expenses separate from contract fees.
   • Insurance premiums.
   • Goods manufactured/supplied by the seller.
   • Imported goods without taxable presence in Nigeria.
   • LPG, CNG, PMS, AGO, LPFO, DPK, and JET-A1 supplies.
   • Broker commissions on behalf of principals.
   • Winnings from entrepreneurship, academic, technological, or scientific innovation-promoting games or shows.
8. Definitions and Clarifications: The regulations define terms like “across-the-counter transactions” for better understanding and implementation, referring to transactions without established contracts where immediate payment is made in cash or electronically.

Conclusion

The updated regulations mark a significant step towards improving tax compliance and administration in Nigeria. By simplifying processes, reducing rates, and clarifying terms, these regulations aim to foster a more transparent and efficient tax system. These changes not only streamline compliance for businesses but also ensure a steady revenue stream for the government, ultimately contributing to a more robust economic environment. Embracing these regulations will pave the way for better tax practices and a stronger, more accountable business landscape in Nigeria.

Read our recent publication on this: http://innerkonsult.com/wp-content/uploads/2024/08/WHT-Regulations-Upload_updated.pdf

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Inner Konsult Ltd at www.innerkonsult.com at Lagos, Ogun state Nigeria offices, or www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.