How to Calculate WHT in Nigeria: A Step-by-Step Guide

Withholding Tax (WHT) is a tax deducted at source from payments made to individuals or companies by another company or individual. In Nigeria, WHT is governed by the Federal Inland Revenue Service (FIRS) under the Companies Income Tax Act (CITA). It is important for individuals and businesses to understand how to calculate WHT in Nigeria to avoid penalties and ensure compliance with tax laws. This article provides a step-by-step guide on how to calculate WHT in Nigeria.

What is WHT?

Before we dive into the calculation of WHT, it is important to understand what it is. WHT is a tax deducted at source from certain payments made to individuals or companies. The tax is usually deducted by the payer at a certain percentage of the payment made and remitted to the tax authorities. The aim of WHT is to ensure that tax revenue is collected at the source of the payment, to make it easier for the tax authorities to enforce compliance.

Which payments attract WHT?

Not all payments made by individuals or companies attract WHT. The types of payments that attract WHT in Nigeria include:

• Rent paid for property
• Dividends paid to shareholders
• Professional fees paid to consultants, lawyers, accountants, etc.
• Royalties paid for intellectual property
• Interest paid on loans or bonds
• Contract payments
• Management fees

What is the WHT rate in Nigeria?

The WHT rate in Nigeria varies depending on the type of payment being made. The rates are usually specified by the FIRS and are subject to change from time to time. Some common WHT rates in Nigeria include:

• Rent: 10%
• Dividends: 10%
• Professional fees: 5%
• Royalties: 10%
• Interest: 10%
• Contract payments: 5%
• Management fees: 10%

How to Calculate WHT in Nigeria

Calculating WHT in Nigeria involves a simple formula that takes into consideration the payment made, the WHT rate, and the tax payable. The formula is as follows:

WHT payable = Payment made x WHT rate

For example, if a company pays a professional fee of N100,000 to a consultant and the WHT rate is 5%, the WHT payable will be:

WHT payable = N100,000 x 5% = N5,000

The company will deduct N5,000 from the payment made to the consultant and remit it to the FIRS on or before the 10th day of the month following the month in which the payment was made.

What are the penalties for non-compliance with WHT?

Non-compliance with WHT in Nigeria attracts penalties and interest charges. Some of the penalties for non-compliance include:

• Late remittance penalty: 10% of the tax payable plus interest at the prevailing Central Bank of Nigeria (CBN) Monetary Policy Rate (MPR)
• Late filing penalty: N5,000 for the first month of default and N1,000 for each subsequent month of default
• Failure to deduct penalty: 10% of the tax not deducted plus interest at the prevailing CBN MPR

What are the benefits of WHT?

WHT has several benefits for both the tax authorities and taxpayers. Some of the benefits include:

• Increased revenue for the government
• Reduction in tax evasion and avoidance
• Encouragement of voluntary compliance
• Ensuring that taxpayers pay their fair share of tax
• Simplification of tax collection and administration
• Transparency in tax collection

Conclusion

Calculating WHT in Nigeria is an important aspect of tax compliance for individuals and businesses. Failure to comply with WHT laws can attract penalties and interest charges. This article has provided a step-by-step guide on how to calculate WHT in Nigeria, the types of payments that attract WHT, the WHT rates in Nigeria, and the benefits of WHT. It is important for taxpayers to ensure that they comply with WHT regulations to avoid the consequences of non-compliance.

FAQs

Q: What is the deadline for remitting WHT in Nigeria?
A: The deadline for remitting WHT in Nigeria is on or before the 10th day of the month following the month in which the payment was made.

Q: Can I claim WHT as a tax credit?
A: Yes, WHT can be claimed as a tax credit against the total tax liability of the taxpayer.

Q: What happens if I overpay WHT?
A: If you overpay WHT, you can apply for a refund from the FIRS.

Q: Can I be exempted from WHT?
A: Yes, exemptions from WHT are granted in some cases, such as payments made to the Federal or State Government.

Q: How can I verify the WHT status of a vendor?
A: You can verify the WHT status of a vendor by requesting their WHT certificate or checking their Tax Identification Number (TIN) on the FIRS website.