As with other types of taxes, without a proper perspective, the rationale behind the collection of Withholding Tax may be misconstrued as just another tax that has to be remitted before the window closes. Alas, Withholding Tax is critical to both the tax administration and businesses operating in the Nigerian market space.
Putting the all-important nature of the Withholding Tax into proper perspective, a recent webinar session organized by the Chartered Institute of Taxation of Nigeria, CITN featured experts who dedicated time to critically examining the implication and significance of the Withholding Tax.
Deduced from the online session is the importance of the Withholding Tax to help drive into the tax net more prospective taxpayers, leading to a tax net expansion. This is because this type of tax is more likely a piece of collection machinery to curb tax evasion and not a separate tax on its own.
The technicality of Withholding Tax
Mr. Olaoluwa Ogunniyi, a Senior Manager in the Global Compliance and Reporting Team of EY Nigeria during a recent session with the CITN team, withholding tax is an advance payment of income tax deducted at source on qualifying transactions.
He explained further that It is payment on account of the ultimate income tax liability of a taxpayer. It may also represent the final tax liability on certain passive incomes, doubling as a credit against the beneficiaries’ income tax liability for the relevant years.
What you should know
- As deduced from the FIRS, below are key facts to note about the Withholding Tax in Nigeria.
- Withholding Tax (WHT) is a method used to collect Income Tax in advance
- WHT is deducted at varying rates ranging from 5% to 10% depending on the transaction
- The due date for filing WHT returns is the 21st day of every succeeding month
- The penalty for late filing of returns is ₦25, 000 for the first month it occurs and ₦5, 000 for each subsequent month the failure continues.