18 Jan



:: This is not a separate tax but an aspect of administering income tax-see Section 69-73 of the PITA. Individuals, corporate bodies, organisations etc. are liable to withholding tax-Paragraph 1 of the Withholding Tax Regulation.

:: WHT is an anti-evasion technique which seeks to ensure advance payment of tax.

:: This tax is good for “catching” expatriates/foreigners even when they are not within jurisdiction at the relevant time for filing.

:: The Personal Income Tax Rates Deducted at Source (Withholding Tax) Regulation 1997 is the relevant provision here.

The gist/elements of withholding tax includes:

Point One: Parties to a written transaction contract for the supply of goods or services. The goods and services here include; Building and Construction contracts, agency arrangements, consultancy, management services, technical and so on[1].

Point Two: The Payor (the person that is to pay under the contract) deducts the payable tax from the amount he is to pay.

Point Three: The payor issues a receipt to the payee. The receipt evidences such deduction-Regulation 3 (of the WHT regulation).

Point four: The payor must remit the tax that was withheld/deducted to the relevant tax authority within 30 days else liable to 10% + interest upon conviction by an order of a competent court-Regulation 5.

Point 5: The Tax authority gives the payee a credit note and receipt which evidences such deduction. This credit note shall be utilised when deducting withheld tax from tax liability subsequently. This process is frustrated by tax authorities utilising “matching concept” to restrict validity of the credit note to one year (current year). The E-filing and E-payment has been introduced which automatically generates credit note although the server is seldom accessible. Some practitioners have leveraged on this and contract with payees to monitor and collect their credit notes on their behalf in return for a commission.

In layman’s description; Kunle supplies Tayo with a truck of Cement and Tayo is to pay Kunle N3 million Naira. If the tax to be charged on the transaction is 100 thousand Naira,  Tayo can pay Kunle N 2.9 million and pay the balance of N100,000 to the tax authority. In such a case, Tayo is said to have “withheld” the tax of 100,000 which must be remitted to the relevant tax authority.


Withholding Tax shall not apply to the following:

  • Reimbursements: for expenses incurred on the payee’s behalf.
  • Payment across the counter: transactions that are not written or documented cannot be subject to withholding tax. Like market sales.
  • Agreement that payment would be “net of taxes”: here the liability is shifted from the payee to the payor. E.g. from the example given earlier, if Kunle is tells Tayo that he wants the full 3 million naira, the burden shifts to Tayo. Tayo would pay Kunle 3 million and independently hustle for the N100,000. In essence, he is spending 3.1 million. In Total V Akinpelu, the plaintiff leased land to TOTAL. On agreement that payment shall be net of taxes. When paying rent, TOTAL sought to withhold tax. The court held that the since the agreement was net of taxes, TOTAL cannot withhold tax.

:: withholding tax is not a separate tax. It is just a convenient means of collecting tax. In 7up Plc V Lagos State Board of internal Revenue, Lagos alleged that 7Up ought to have withheld 5 percent tax for its transaction for sale of sugar with the vendor. It was accepted that such transaction was expenditure which could be calculated later when filing returns.


PAY AS YOU EARN: Although PITA is a yearly statute, an exception is made in Section 26 for the PAYE which authorises periodic (usually monthly salary) deduction of tax at source. Section 44 and 41 require all taxpayers to file tax returns.

BENEFITS IN KIND: These are non-cash benefits which employees enjoy. For example car, holiday trips, and so on. Section 4,5 and 6 imposes 5 percent tax on such benefits.

TAX AUDIT: The tax authority seeks to ensure maximum level of compliance. It may request for books of accounts and other disclosure of a taxpayer and even exercise power to distrain as provided under Section 104. This brings more people especially expatriates within the tax net. An assessment is said to be final where the taxpayer gets the assessment and fails to protest.

On power of “destraint”, Section 104 provides thus:

(1) Without prejudice to any other power conferred on the relevant tax authority for the enforcement of payment of tax due from a taxable person, where an assessment has become final and conclusive and a demand note has, in accordance with the provisions of this Act, been served on the taxable person or on the person in whose name the taxable person is chargeable, then if payment of the tax is not made within the time limited by the demand note, the relevant tax authority may, in the prescribed form, for the purpose of enforcing payment of the tax due—

(a) distrain the taxpayer by his goods or other chattels, bonds or other securities;(b) distrain upon any land, premises, or place in respect of which the taxpayer is the owner’and subject to the following provisions of this section, recover the amount of tax due by sale of anything so distrained”.

Section 104 (3 and 4) provide that the power to distrain must be exercised with a warrant. The property can be sold to offset tax liability in deserving situations.



Tax should be paid to the authority where the taxpayer is resident (territory where the taxpayer resides… his centre of gravity)-section 2. An itinerant worker pays wherever he is found. The first schedule provides details:

  • Where a taxpayer is resident in more than one place, the determinant would be his principal residence.
  • The taxpayer can appeal to the Tax Appeal Tribunal where he disputes the residence that was applied to him-paragraph 10.

In AG Ogun V AG Lagos, question was as regards those that stay on the border of Lagos and Ogun State. The court held that the place closest to the place of work may determine. Based on the facts and circumstances of the case.



[1] Schedule 1 of the WHT Regulation imposes a Tax of 5 percent of the price/value of the contract.


Quite eccentric really

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