The federal Ministry of Finance recently issued new regulations on WHT with effect from July 1, 2024.
This article takes a look at the main adjustments as well as the issues arising therefrom.
Key Areas Of Adjustments In WHT Regulations
WHT on transactions with no identification number: WHT will apply at twice the designated rate on
trading income earned by vendors that do not provide a Taxpayers Identification Number (TIN).
Who should deduct WHT: The new WHT Regulations removes the operation of the Pay-As-You-Earn (PAYE)
scheme as a requirement to be eligible to deduct WHT. The Regulations clarify that other than individuals, virtually
all businesses, organisations (including those exempt from tax), government ministries, departments and agencies,
and their payment agents are required to deduct WHT on eligible transactions.
However, small companies are exempt from deducting WHT, provided that the transaction value is less than
NGN2,000,000 and the vendor has a valid TIN.
When to deduct: The Regulations clarifies that for transactions between unrelated parties, WHT is to be
deducted at the earlier of when:
• payment is made; or
• the amount due is otherwise settled
However, WHT on transactions between related parties apply at the earlier of payment or when the liability is
recognised.
This largely addresses the ambiguity around the timing of WHT deductions. However, for passive incomes
(dividends, interest, royalty and rent), the substantive laws still generally provide that the WHT should be due at the
earlier of when the payment is “made or credited”, and this would supersede the Regulations.
When to pay WHT: The timelines for payment of WHT remain the same as under the previous WHT
Regulations (i.e 21st of the following month for payments to the FIRS, and 30th of the following month for payments
to the relevant SIRS). Additionally, the Regulations clarify that Capital Gains Tax (CGT) deducted on payments to
individuals should be paid to the relevant SIRS by the 10th of the following month, similar to income tax paid
through the PAYE Scheme.
WHT receipts and credits now issued by customer: The Regulations provide that the customer (and not
the tax authority) should issue a receipt of tax deducted to the vendor. The vendor can present this receipt to the
relevant tax authority as evidence of WHT deducted and will get value, regardless of whether the WHT was
remitted by the customer or not.
Where customers issue receipts for deducted but unremitted WHT, the customer will be liable to the WHT as their
tax liability, together with interest and penalty in line with the law.
Customers that pay vendors in full: Customers that did not deduct WHT but paid their vendors in full will be
subject to administrative penalty and a one-off interest, as opposed to the current practice of requiring such
customers to also pay the WHT.
Transactions Exempt In The New WHT Regulations
Transactions exempt in the Regulations include the following as WHT exempt (among others):
• Goods manufactured or materials produced by the person making the supply. The Regulations define
manufacturing/production to include the production of energy, including electricity, gas and petroleum
products
• Across the counter transactions, i.e transactions carried out between parties without established or prior
contractual relationship and in which payment is made on the spot
• Interest and fees paid to a Nigerian bank by way of direct debits to accounts in the banks
• Out-of-pocket expenses normally expected to be incurred by the supplier distinguishable from contract fees
• Insurance premium
• Supply of Liquefied Petroleum Gas, Compressed Natural Gas (CNG), Premium Motor Spirits (PMS),
Automotive Gas Oil (AGO), Low Pour Fuel Oil (LPFO), Dual Purpose Kerosene (DPK) and JET-A1
• Commission retained by broker from monies collected on behalf of principal in line with the industry norm
• Winnings from a game of chance or a reality show with contents designed to promote entrepreneurship,
academics, technological or scientific innovation
Issues Arising from The New WHT Regulations
The WHT Regulations have introduced key changes which reduce uncertainties and administrative burden on taxpayers, and are generally beneficial to taxpayers. It also raises certain issues some of which we highlight below:
General/administrative considerations____________________________________________
a) Transition period: The National Tax Policy (NTP) recommends a 90-day window for the implementation of tax
law amendments. The regulations take effect immediately with no transition period contrary to the provisions of
the NTP.
b) Configuration of systems: Accounting systems need to be upgraded to reflect more tax rates. There are now at
least 6 WHT rates: 0%, 2%, 5%, 10%, 15% and 20% and potentially more considering that the rates are doubled
where vendors do not provide TINs. Compliance processes should be tightened possibly with a need to invest in
more modules to avoid significant exposures arising from several tax rates.
c) Instant credits: The new Regulations require the customer to issue WHT receipts as against the historical
practice where this was done by the tax authorities. Taxpayers will be pleased that they can obtain value as
soon as the customer issues WHT receipts, as this avoids unnecessary delays and loss of value.
However, there are concerns on how this will be applied on the Taxpro Max portal which is used by the
FIRS, or other online system used by other state tax authorities. Currently, WHT deducted and paid by
customers automatically reflect in favour of the vendors on Taxpro Max. With the introduction of the new
Regulations, vendors will have to submit WHT receipts issued by customers for manual update on TaxproMax by the FIRS. This introduces a manual administrative step which may also require reconfiguration of the
system, and may mean that the FIRS would need to set up procedures to verify the uploads. We recommend
that receipts issued by customers should bear payment reference numbers to ease reconciliation.
d) Sales in the ordinary course of business: The Regulations clarify the previous ambiguity around “sales in
the ordinary course of business” as it more clearly defines WHT exempt supplies. Certain services that were
considered as “sales in the ordinary course of business” and previously exempt will now no longer enjoy the
WHT exemption. For other sales of goods that are not exempt, vendors should be aware that their supplies
now attract 2% WHT. These companies would now need to make a taxable margin of at least 6.7% in order
to fully absorb the WHT, otherwise, they would be in a tax refund position.
e) Addressing WHT refunds: There was a reduction of the WHT rate for a number of transactions including
colocation and other services with low profit margins. Affected taxpayers may have over time accumulated
excess WHT credits with no cash refund in view. The amendments therefore lend support to better cash flow
management, freed up funds for capital investments and the ease of doing business amidst recent exits of
multinationals from Nigeria.
It is hoped that the FIRS and Joint Tax Board would also issue clear modalities in future around obtaining
accumulated WHT refunds with more focused rather than unduly lengthy audits.
f) Commission and brokerage fees: The Regulations clarify that WHT should not apply on commission
retained by a broker on monies collected on behalf of the principal in line with the industry norm. This puts
the agelong issue to rest and overrides previous judicial precedents that gave contrary rulings. It is expected
to be a welcome development to players in sectors where agents or brokers deduct their fees at source.
g) Transaction currency: Following the announcement of the 30 day quick wins of the Presidential Committee
on fiscal policy and tax reforms last year, we anticipate an amendment that allows WHT to be paid in Naira
regardless of the transaction currency. This is expected to reduce the pressure on the Naira especially in
view of the declining foreign exchange rate
Oil and gas/Energy
The Regulations stipulate that businesses in this sector are now exempt from WHT where such businesses
supply energy (including electricity, gas and petroleum products). The Regulations also clarify that WHT does not
apply on the sale of LPG, CNG, PMS, AGO, LPFO, DPK and JET-A1. This is expected to be well received by
participants in this sector.
Non-residents
a) The Regulations do not clearly exclude non-residents from deducting WHT. Based on jurisdictional
expedience, Nigerian laws should ordinarily not extend to NRCs, especially if they do not have a fixed base or
dependent agency arrangement in Nigeria.
b) Many non-residents, especially those that remotely transact with Nigerian customers or earn passive income
from Nigeria, do not register for taxes in Nigeria in practice. This may result in the application of double the
WHT rate on the relevant transactions in line with the new Regulations. Such costs may eventually be borne
by the customers in practice. The tax authorities may consider ruling that where the beneficiary TIN is not
available, the customer can include alternative means of identification of the non-resident supplier ( such as
Business Registration Number, etc). The rationale is to align with global best practice and reduce
administrative burden for non-residents seeking to do business with Nigeria, and ultimately ensure WHT
deducted is remitted to the tax authorities.
Public sector
Ministries, Departments, and Agencies (MDAs), have historically been required to deduct WHT based on the
rates specified in the Government Financial Management Information Systems (GFMIS). The GFMIS now needs
to be updated to reflect the new rates. The GFMIS notably still charges Stamp duties on transactions with the
government, despite the legal exemption of Stamp duties on transactions with the federal government.
In general, the new WHT Regulations are expected to make the tax landscape in Nigeria more business friendly.