Do you know what withholding tax (WHT) is ? Here is a brief summary

Understanding Withholding Tax in Nigeria.

Withholding Tax (WHT) in Nigeria is an advance payment of income tax, ensuring tax compliance and reducing evasion. It’s not a separate tax but an advance payment on the final tax liability.
WHT helps capture tax at source, ensuring that income from various transactions is taxed before it reaches the beneficiary, aiding in revenue collection for national development.

WHT applies to various income sources including dividends, interest, royalties, rent, and payments for goods and services. Rates vary depending on the income type and beneficiary status.
The rates for WHT range from 5% to 15%, with specifics depending on the transaction type and whether the beneficiary is an individual or a corporation.
The payer of income, like employers, contractors, or companies, is responsible for deducting WHT and remitting it to the Federal Inland Revenue Service (FIRS).

WHT must be remitted within 21 days after the duty to deduct arises, with non-compliance leading to penalties and interest. Businesses must file WHT returns monthly.
Effective from January 1, 2025, new regulations provide exemptions for small businesses and reduced rates for certain sectors, aiming to simplify compliance and boost economic growth.
Some transactions and entities are exempt from WHT, including small businesses under specific conditions, and certain incomes like those from government securities or agricultural activities.

WHT acts as a credit against the final tax liability, helping to reduce the total tax payable at year-end, but managing this can be complex for businesses.
While WHT is essential for tax collection, understanding its nuances ensures compliance, minimizes disputes, and supports Nigeria’s economic framework.