DEDUCTION OF TAX AT SOURCE (WITHOLDING TAX) REGULATION

A Regulation that requires the deduction of withholding tax from specified transactions, such as contracts and dividends, as an advance payment of income tax. It targets companies, individuals, contractors, and financial institutions to ensure uniform collection and remittance. This promotes tax compliance and steady government revenue.

What Is This Policy?

Withholding Tax (WHT) is an advance payment of income tax deducted at source from specified transactions (e.g., contracts, rent, dividends, interest). It is not a separate tax but a mechanism to ensure compliance and regular revenue flow.

Who Does It Target?

The regulations apply to companies, individuals, contractors, landlords, investors, and financial institutions. They also target tax authorities and auditors, ensuring uniformity in deduction and remittance.

What Does It Aim to Achieve?

The central objective is to streamline withholding tax administration, reduce evasion, and promote equity. It ensures that taxes are deducted upfront, improving government revenue and accountability.

Key Features

• Commencement: July 1, 2024. • Scope: Applies to payments under CITA, PPTA, PITA, and CGTA. • Specified Transactions: Contracts, consultancy, rent, dividends, interest, royalties, etc. • Uniformity: Harmonizes rules across federal and state tax systems. • Compliance Enforcement: Penalties for failure to deduct or remit.

Current Status

Rollout Stage: active Coverage: applies nationwide Beneficiaries to Date: Government (steady revenue), taxpayers (advance credit against final tax liability) Funding: Through deductions at source.

How to Access

Federal Ministry of Finance: https://finance.gov.ng Federal Inland Revenue Service (FIRS): https://firs.gov.ng Nigeria Gazette (2024): Official publication of the WHT Regulations.

Important Terms

Term 1-Withholding Tax (WHT) This is not a separate tax but an advance payment of income tax. It is deducted at source from specified transactions (contracts, rent, dividends, interest, royalties) and later credited against the taxpayer’s final liability. It ensures compliance and steady government revenue. Term 2- Deduction at Source The legal obligation of the payer (company, government agency, or individual) to deduct tax before making payment to the beneficiary. This shifts responsibility from the recipient to the payer, reducing evasion.

Official Resources

• Federal Ministry of Finance Custodian of the regulations. Website: https://finance.gov.ng Address: Ahmadu Bello Way, Central Business District, Abuja. • Federal Inland Revenue Service (FIRS) Implements WHT deductions and remittances. Website: https://firs.gov.ng • Nigeria Official Gazette (Vol. 111, No. 168, October 2024) Contains the full text of the Deduction of Tax at Source (Withholding) Regulations, 2024. Available via the Federal Government Printer, Lagos. Link to document- https://fiscalreforms.ng/wp-content/uploads/2024/10/Deduction-of-Tax-at-Source-Withholding-Regulations-2024_Gazetted.pdf

Legal Framework

The Withholding Tax (Deduction) Regulations operate under the Companies Income Tax Act (CITA), the Personal Income Tax Act (PITA), and the Federal Inland Revenue Service (Establishment) Act 2007. The Finance Acts (2019–2025) have amended WHT rates on various transactions. Constitutional authority derives from the Second Schedule of the 1999 Constitution on federal taxation. The WHT (Amendment) Regulations 2024 provide the most current rates and procedures.