Withholding Tax (WHT) has long been one of Nigeria’s most misunderstood taxes. It has often been seen as both a deduction and a prepayment, depending on who you ask. The Nigeria Tax Act, 2025 brings long-overdue clarity by streamlining how WHT is applied, who deducts it, when it’s due, and what happens after deduction.
Who Is Responsible for Deducting and Paying WHT
At its core, WHT is a mechanism for collecting income tax in advance. It is not an additional tax on income, but a portion of tax that’s withheld at the point of payment and remitted directly to the government. The goal is to improve compliance, reduce evasion, and ensure a steady flow of revenue to the tax authorities.
Under the new law, the “payer,” that is, the person or entity making a payment that attracts tax, is the one responsible for deducting the withholding tax at source. The tax must then be remitted to the relevant tax authority depending on the recipient’s status:
- Federal Inland Revenue Service (FIRS) collects WHT on payments made to companies and non-resident entities.
- State Internal Revenue Services (SIRS) collect WHT on payments made to individuals, sole traders, or partnerships operating within the state.
What Transactions Attract WHT
The 2025 Act reaffirms the scope of transactions subject to withholding, including:
- Contracts and consultancy services (technical, management, or professional fees)
- Rent, royalties, and interest payments
- Dividends paid to shareholders
- Payments to contractors or suppliers for goods and services
- Payments made to non-residents for services rendered in Nigeria
Essentially, any payment that represents income in the hands of the recipient is likely to attract WHT unless explicitly exempted.
Rates of Withholding Tax
The Act consolidates previous rates and retains most of the established percentages, though it aligns them more clearly with the nature of the transaction and the recipient’s category. The current rates are as follows:
| Transaction Type | Companies | Individuals |
|---|---|---|
| Dividends, Interest, Rent, Royalties | 10% | 10% |
| Consultancy, Professional & Management Fees | 10% | 5% |
| Contracts and Supplies | 5% | 5% |
| Commissions, Agency Fees | 10% | 5% |
| Construction and Building Contracts | 2.5% | 2.5% |
These deductions apply at the time of payment or credit, whichever comes first, and help ensure that tax authorities receive revenue promptly.
How and When to Remit
WHT must be remitted to the appropriate tax authority within 21 days from the date the deduction was made. Late remittance attracts both interest and penalties as stipulated under the Nigeria Tax Administration Act, 2025, which works hand-in-hand with the main Tax Act to enforce compliance.
For electronic payments, the Act supports digital remittance systems via authorized platforms, a reform aimed at simplifying compliance for businesses.
Tax Credit for the Recipient
Perhaps the most important clarification in the 2025 Act is that withholding tax serves as a tax credit against the recipient’s eventual income tax liability. In other words, when you file your annual tax return, the amount withheld from your income is deducted from your total tax payable.
If the total withheld exceeds your actual tax liability, the excess may be carried forward as a credit to the following year or refunded upon verification.
For non-resident companies, WHT represents a final tax in many cases, meaning it satisfies their entire Nigerian tax obligation on that income, particularly where there’s no permanent establishment in Nigeria.
Compliance Tip: Penalties and Offences
Sections 178–182 of the Nigeria Tax Administration Act, 2025 establish specific penalties for non-compliance. The key points are:
- Failure to Deduct WHT
- If a payer fails to deduct tax when required, they become personally liable for the full amount that should have been withheld, plus interest and penalties.
- The penalty is the amount of tax not deducted, plus a surcharge of 10%, and daily interest at the prevailing monetary policy rate until payment.
- Late Remittance
- If tax is deducted but not remitted within 21 days, the payer faces a 10% surcharge on the unremitted amount, plus accruing interest.
- Continuous default can trigger additional enforcement measures, including garnishee orders or asset recovery actions by the tax authority.
- False or Incomplete Reporting
- Submitting false information or failing to provide required WHT schedules constitutes an offence punishable by fines or prosecution.
- The NRS and SIRS are empowered to impose administrative penalties and, in serious cases, initiate court proceedings.
- Denial of Tax Clearance Certificate
- A taxpayer or company with outstanding WHT obligations will not be issued a Tax Clearance Certificate (TCC), effectively blocking them from government contracts or regulatory approvals.
The Takeaway
If you pay others for goods, contracts, or services or receive such payments yourself, you’re part of the withholding tax chain. Under the Nigeria Tax Act, 2025, compliance is no longer a matter of discretion but of duty, backed by clear timelines and electronic reporting systems.
The essence of the new regime is simple: tax should be paid when income is earned, not years later.
How Taxpal Can Help
Navigating Nigeria’s new income tax landscape doesn’t have to be overwhelming. Taxpal is a comprehensive tax management platform designed to simplify tax processes for individuals, corporations, and payroll companies. The Taxpal platform offers:
- Automated solutions for income classification and tax calculation
- Expert guidance on complex employment tax matters
- Personalized support tailored to your profession and situation
- Digital tools for seamless tax management and compliance
To get started, visit their website and choose the option that suits you best, whether it’s an in-person consultation or portal access. Let them help you understand exactly how the new tax law affects your income and ensure you’re taking advantage of all available exemptions and reliefs.
