BUSI­NESS Ad­min­is­tra­tion of with­hold­ing tax (ii)

Daily Trust - - TAXATION - By Frank Obaro

The or­gan­i­sa­tions mak­ing the pay­ments are re­quired to with­hold tax from such pay­ments and pay over the with­held amounts to their re­spec­tive rel­e­vant Tax Au­thor­i­ties within 30 days of re­ceipt of pay­ment or credit by the per­son or en­tity suf­fer­ing the Tax.

The rel­e­vant tax au­thor­i­ties to re­ceive the WHT tax trans­ac­tions made by com­pa­nies are FIRS and for in­di­vid­u­als and un­in­cor­po­rated bod­ies sub­ject to Rules of Res­i­dence is SIRS or FIRS.

Per­son li­able to deduct with­hold­ing tax

The payer of with­hold­ing tax in re­spect of any of the ac­tiv­i­ties cov­ered un­der the with­hold­ing tax regime shall in­clude com­pany (Cor­po­rate or non-cor­po­rate), Govern­ment Min­istries and Depart­ment, Paras­tatals, Statu­tory bod­ies, In­sti­tu­tions and other es­tab­lished or­ga­ni­za­tion ap­proved for the op­er­a­tions of Pay-As-youEarn Sys­tem.

Who is tax­able

All Per­sons, Com­pa­nies etc. whose In­comes are li­able to in­come tax, are sub­ject to With­hold­ing Tax.

How­ever, ex­empt en­ti­ties like Ed­u­ca­tional In­sti­tu­tions, Govern­ment Min­istries, Paras­tatals and other Agencies of Govern­ment, are Agents for the collection of WHT. They are re­quired to deduct WHT on any pay­ment made to a tax­able body and remit same to the rel­e­vant tax author­ity.

With­hold­ing tax im­pli­ca­tion on for­eign trans­ac­tions

Non Res­i­dent En­ter­prises

The Rev­enue prac­tice is that non-res­i­dent com­pa­nies are not em­pow­ered to deduct any type of WHT. These cat­e­gories of en­ter­prises are prac­ti­cally out­side the reg­u­la­tory mon­i­tor­ing and con­trol of the FIRS. It will be im­prac­ti­ca­ble for Rev­enue of­fice to in­spect the ac­count­ing books of these com­pa­nies in or­der to con­firm due de­duc­tion and re­mit­tance of WHT.

Com­pa­nies/

Dou­ble Taxation Agree­ment (DTA)

Trans­ac­tions that are or­di­nar­ily not li­able to tax in Nigeria are not li­able to WHT in Nigeria. Thus, con­tracts and sup­plies of goods and ser­vices per­formed en­tirely out­side Nigeria by non-res­i­dent in­di­vid­u­als are not li­able to WHT. Nigeria has treaty agree­ments with about eight (8) coun­tries and these coun­tries are granted a re­duced rate of WHT de­duc­tion, usu­ally at 75% of the gen­er­ally ap­pli­ca­ble WHT rate. 7.5%. These coun­tries in­clude UK, North­ern Ire­land, Canada, France, Bel­gium, the Nether­lands, Pak­istan, and Ro­ma­nia.

Per­ma­nent es­tab­lish­ment (pe) prin­ci­ple ex­ists un­der nigeria taxation

The rules con­strue a PE where: •The com­pany has a ‘‘fixed base’’ in Nigeria.

•The com­pany op­er­ates in Nigeria through a de­pen­dent agent au­tho­rized to con­clude con­tracts or deliver goods on its be­half,

•The com­pany is ex­e­cut­ing a turnkey project in Nigeria, or

•The oper­a­tion be­tween the com­pany and its Nigeria af­fil­i­ate does not ap­pear to be at arm’s length.

• ‘Fixed base’’ im­plies some de­gree of per­ma­nence and will in­clude:

•Fa­cil­i­ties, such as a fac­tory, of­fice, branch, mine, oil or gas well

•Ac­tiv­i­ties, such as build­ing, con­struc­tion, as­sem­bly or in­stal­la­tion

•Pro­vi­sion of ser­vices in con­nec­tion with the ac­tiv­i­ties listed above.

Prin­ci­ples of per­ma­nent es­tab­lish­ment

The rules con­strue a Per­ma­nent Es­tab­lish­ment where:

The com­pany has a ‘‘fixed base’’ in Nigeria.

The com­pany op­er­ates in Nigeria through a de­pen­dent agent au­tho­rized to con­clude con­tracts or deliver goods on its be­half,

The com­pany is ex­e­cut­ing a turnkey project in Nigeria, or

The oper­a­tion be­tween the com­pany and its Nigeria af­fil­i­ate does not ap­pear to be at arm’s length.

‘‘Fixed base’’ im­plies some de­gree of per­ma­nence and will in­clude: Fa­cil­i­ties, such as a fac­tory, of­fice, branch, mine, oil or gas well Ac­tiv­i­ties, such as build­ing, con­struc­tion, as­sem­bly or in­stal­la­tion Pro­vi­sion of ser­vices in con­nec­tion with the ac­tiv­i­ties listed above.

Other types of in­come not li­able to wht

Com­pa­nies op­er­at­ing within the Free Trade Zones/Ex­port Pro­cess­ing Zones In­sur­ance pre­mium Turnover/In­come from Deal­er­ship or Dis­tribu­tive trade

Tele­phone Bills are not sub­ject to WHT

Ap­pli­ca­tion of with­hold­ing tax

Sec­tions of CITA and PITA that pro­vide for the de­duc­tion of with­hold­ing tax at the ap­pli­ca­ble rates be­low

Ap­pli­ca­ble In­di­vid­ual Types of pay­ment rates Com­pa­nies

Div­i­dends, In­ter­est, Rent 10%, 10% Di­rec­tors Fees 10%, 10% Roy­al­ties 15%, 15%, Com­mis­sion, Con­sul­ta­tion, 10%, 5%, Tech­ni­cal, Ser­vice Fees Man­age­ment fees 10%, 5%, Con­struc­tion/Build­ing Con­tracts 5% 5%.

Con­tracts, other than out­right sales and pur­chase of goods in the course of busi­ness.

Re­turns and Re­mit­tance

Tax Re­turns are filed monthly with ev­i­dence of re­mit­tance and a de­tailed sched­ule of tax­able trans­ac­tions.

Sub­mit­ted sched­ule should show the fol­low­ing de­tails:

Name of sup­plier Ad­dress Na­ture of In­voice pay­ment Amount Rate @ Y% Tax Ser­vice Date

Re­turns for cor­po­rate sup­pli­ers should be filed within 21 days from end of month of trans­ac­tions.

Re­turns for non –cor­po­rate sup­pli­ers should be filed within 30 days from end of month of trans­ac­tion.

In prac­tice, tax re­turns are filed in the same month they oc­cur.

Tax de­ducted should be re­mit­ted to the rev­enue in ex­change for a re­ceipt of pay­ment.

Tax is payable in the cur­rency of the qual­i­fy­ing trans­ac­tion.

Fol­low­ing pay­ment and fil­ing of re­turns, the rev­enue pro­cesses credit notes for the sup­pli­ers on whose in­come tax was de­ducted.

Credit notes can be used in ap­ply­ing for tax credit against cur­rent and fu­ture tax li­a­bil­i­ties (i.e. where it is not fi­nal tax)

Re­mit­tances are due to ei­ther federal or state tax au­thor­i­ties.

Re­mit­tances due to Federal In­land Rev­enue Ser­vice (FIRS): • Cor­po­rate en­ti­ties, • Non res­i­dent in­di­vid­u­als, • Mem­bers of the armed forces and po­lice, • Res­i­dent of Abuja, • For­eign of­fi­cers. Re­mit­tances due to state in­ter­nal rev­enue ser­vice (SIRS):

• All other in­di­vid­u­als / part­ner­ships res­i­dent in the state.

Pay­ment on cur­rency

Sec­tion 64B of CITA em­pow­ers the tax author­ity that with­held tax must be re­mit­ted to the tax author­ity in the cur­rency in which the de­duc­tion was made. This means that trans­ac­tions made in for­eign cur­rency are to be re­mit­ted in the same cur­rency and that the tax so with­held is to be re­mit­ted in the same cur­rency. Si­mul­ta­ne­ously penalty for de­fault would also be cal­cu­lated in the same cur­rency.

How to claim with­hold­ing tax credit (credit notes)

A tax­payer from whom tax has been with­held is ex­pected to gain with­hold­ing tax credit notes from the rel­e­vant tax author­ity via the de­duct­ing or­ga­ni­za­tion. All with­held taxes are for­warded to the tax author­ity, which in turn records the credit against the tax payer’s ac­count, with a sched­ule con­tain­ing de­tails of the con­tract or ser­vice, on which ba­sis the tax author­ity is­sues a credit note. As­sessed tax and re­lated charges are usu­ally en­tered as deb­its in the tax­payer’s tax ac­count, while he is ex­pected to pay only the dif­fer­ence be­tween his as­sessed tax and with­hold­ing tax credit at the time of fil­ing their own re­turns.

It is this credit note that a tax­payer uses as a set off against tax as­sessed within that year or if unuti­lized within that year can be ap­plied based on the tax­payer re­quest to trans­fer the credit bal­ance in that year to off­set or re­duce debit bal­ance of an­other year.

In cases where there is an ex­cess charge of WHT on a tax­payer, the 2007 amend­ments to CITA (Sec­tion 63 (7)) have even fur­ther em­pow­ered FIRS to re­fund proven ex­cess with­hold­ing tax to any tax­payer within 90 days of fil­ing a claim.

Of­fences and penal­ties Of­fences

Fail­ure to with­hold tax or Fail­ure to remit or late re­mit­tance of the tax with­held

Non re­mit­tance of the tax with­held within the time limit stip­u­lated by the Rev­enue.

Penal­ties

a. For Com­pa­nies A fine of 200 per­cent of the tax not with­held or with­held but not re­mit­ted, plus in­ter­est at the pre­vail­ing commercial rate.

b. For In­di­vid­u­als and other Or­ga­ni­za­tions

A fine of the higher of N5,000 or 10% of the amount of tax due, plus the amount of tax de­ductible , or with­held but not re­mit­ted, plus in­ter­est at the pre­vail­ing commercial rate.

• In­ter­est on Sav­ings Ac­count of less than N50, 000 paid by a Bank, is not sub­ject to WHT.

The WHT sys­tem has come to stay since it is a ver­i­ta­ble source of rev­enue to Govern­ment. It en­hances the collection ef­forts of Tax Au­thor­i­ties and it en­sures that rev­enue is gen­er­ated in ad­vance. It is there­fore im­per­a­tive that the sys­tem should con­tinue to be im­proved upon in the light of mod­ern tax ad­min­is­tra­tion pro­ce­dure. Usu­ally an ad­vance pay­ment of tax pro­vides in­for­ma­tion that an in­come source has been iden­ti­fied through a third party. Such in­for­ma­tion be­ing pro­vided by the payer should be read­ily avail­able for use in ac­cess­ing a po­ten­tial tax­payer. Field of­fi­cers should al­ways be ready to fol­low up on such in­for­ma­tion.

Obaro is an Abuja-based tax and fi­nan­cial an­a­lyst.

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