Paying of taxes is important and you should pay if you are a person or company doing business in Nigeria. There are a number of payable taxes in Nigeria, withholding tax is what this article will be talking about.
If you have been hearing about withholding task in Nigeria without really knowing what it is or how it works, reading this article will clarify you.
What is Withholding Tax in Nigeria?
Simply put, withholding tax is an advance payment you make for income tax. It is really not a task itself, it is just a payment made as regards to the consummate income tax liability. As a taxpayer (individual or company), the value for this task will be deducted when someone is about to make a payment with you being the beneficiary and will be passed onto the Nigerian government.
Withholding tax is important to the government as it is a source of revenue and also ensures that employees pay their taxes. It is also beneficial to the employees as it helps pay their tax little as little so the amount does not accumulate and become much.
Where is Withholding Tax Applicable
There are many business transactions where withholding tax is applicable to, below are some of them;
⦁ Rent Fee
⦁ Building and construction services
⦁ Technical and management services
⦁ Professional and consultancy services
Generally, withholding tax will be deducted by a payer when money is being paid to a supplier or vendor by an organization, company or individual body. That is simply how it works.
Withholding Tax Rates
The rates charged for withholding taxes differ for individual and company. It also depends on the amount involved in the transaction. Individual taxpayers will be charged 5 – 10% while companies will be charged 2.5 – 10%.
Withholding Tax Returns
In some cases, it is possible to file for withholding tax returns. This can be filled by the body that made the payment to a service supplier within the first 21 days after money deduction. It will be handled by the Federal Inland Revenue Services (FIRS)
Documents required for Withholding Tax Returns
For your withholding tax return to be successfully processed, you have to provide the following documents;
⦁ Payment Evidence: this can be a bank teller, payment receipt or payment ticket from the bank.
⦁ Supplier/Vendor name
⦁ TIN – Tax Identification Number – of the supplier/vendor
⦁ Amount deducted
What happens if you fail to pay Withholding Task
If you fail to deduct and remit withholding tax when paying a vendor or supplier, you have up till 30 days after the supposed payment date to still make the payment. Failure to do so after the 30 days, you will have committed a tax offense which attracts the following penalties in addition to the tax being deducted;
⦁ 10% of the supposed withholding task amount as fine. N5,000 will be collected if the 10% is lesser than N5,000
⦁ Lending rate interest at the commercial bank where the payment was made.
Withholding tax is a legal tax mechanism in Nigeria and is regulated by the Federal Government so it is important.