What Businesses/Suppliers Need to Know About Withholding Tax in Nigeria
If
you’re a supplier (i.e., supplier of services or goods) in Nigeria, whether
you’re a small-scale entrepreneur, or even a large corporation, you must have
heard about withholding tax (WHT). WHT may look pretty straightforward. However,
under the new regulation on WHT things can get a bit tricky when it comes to
businesses or suppliers without a Tax Identification Number (TIN). So, let’s dig
deep into how the new withholding tax rules, as outlined in the Deduction of
Tax at Source (Withholding) Regulations, 2024, apply to businesses/suppliers
that don’t have a TIN. By the end of this article, you’ll have a clear
understanding of what this means for you, your business and your suppliers.
READ ALSO: Understanding
Nigeria's Tax Identification Number (TIN)
What is Withholding Tax, and Why Should
You Care?
First
things first, what’s withholding tax? Withholding tax is a method the Nigerian
government uses to collect taxes at the source of income. In simpler terms,
when you make a payment to someone for goods or services, you’re required to
deduct a certain percentage of that payment as tax and remit it to the tax
authorities. This tax is then credited to the recipient’s tax account, and they
can use it to offset their final tax liability at the end of the year.
READ ALSO: Penalties
for Failure to Deduct Withholding Tax in Nigeria: The Old Regime Vs The New
Regulation
As
emphasized in the article Penalties
for Failure to Deduct Withholding Tax in Nigeria: The Old Regime Vs The New
Regulation, the new Deduction of Tax at Source
(Withholding) Regulations, 2024, which came into effect on January 1, 2025,
have introduced some changes to how withholding tax is applied, especially when
it comes to businesses without a TIN.
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The New Withholding Tax Rules: What’s
Changed?
The
Deduction of Tax at Source (Withholding) Regulations, 2024, have introduced
several changes to the way withholding tax is applied in Nigeria. One of the
most significant changes is the introduction of higher withholding tax rates
for businesses that don’t have a TIN. According to Regulation 3(c) of the new
regulations, if a recipient of a payment doesn’t have a TIN, the amount to be
deducted at source will be twice the normal rate.
Let me explain this with an example. Suppose you’re a supplier of goods, and the standard withholding tax rate for your transaction is 2%. If you have a TIN, the payer will deduct 2% from your payment and remit it to the tax authorities. However, if you don’t have a TIN, the payer will deduct 4% instead. That’s double the standard rate, and it can significantly impact your cash flow.
Real-World
Implications for Businesses/Suppliers Without a TIN
To better understand the impact of these new rules,
let’s look at a real-world example. Imagine you’re a small business owner
supplying office equipment to a large corporation. Under the new regulations,
if you don’t have a TIN, the corporation will deduct 4% instead
of the standard 2% from your payment. For a payment of N1,000,000,
this means N40,000 will be deducted instead of N20,000.
That’s an extra N20,000 that could have been used to cover
your operational costs.
Moreover, without a TIN, you won’t be able to claim tax credits for the withholding tax deducted from your income. This means you’ll essentially lose out on the opportunity to offset your final tax liability, resulting in higher overall tax payments.
Why the Higher Rate for Businesses
Without a TIN?
You
might be wondering why the government has decided to impose higher withholding
tax rates on businesses without a TIN. The answer lies in the government’s
efforts to encourage tax compliance and reduce tax evasion. By imposing higher
rates on businesses that don’t have a TIN, the government is essentially
creating a financial incentive for businesses to register for a TIN and
regularize their tax status.
The logic is simple: if you don’t have a TIN, you’re more likely to be operating outside the formal tax system, which means the government is missing out on potential tax revenue. By doubling the withholding tax rate for businesses without a TIN, the government is ensuring that it collects more tax upfront, even if the business isn’t fully compliant.
The Implications for Businesses Without a
TIN
If
you’re running a business without a TIN, the new withholding tax rules can have
several implications for you. Let’s take a closer look at some of the key
issues you might face.
1.
Higher Withholding Tax Rates
As
we’ve already discussed, the most immediate impact of not having a TIN is that
you’ll be subject to higher withholding tax rates. This means that more of your
income will be deducted at source, leaving you with less cash to run your
business. For small businesses and startups that are already struggling with
cash flow, this can be a significant burden.
2.
Difficulty in Claiming Tax Credits
Another
major issue is that without a TIN, you won’t be able to claim tax credits for
the withholding tax that has been deducted from your income. Normally, when tax
is deducted at source, it’s credited to your tax account, and you can use it to
offset your final tax liability at the end of the year. However, if you don’t
have a TIN, the tax authorities won’t have a way to track these deductions,
which means you’ll essentially lose out on the tax credits.
3. Risk of Compliance Penalties
Finally,
operating without a TIN puts you at risk of facing compliance penalties. The
tax authorities are increasingly cracking down on businesses that aren’t fully
compliant with tax regulations, and operating without a TIN is a red flag. If
you’re caught, you could face fines, interest on unpaid taxes, and even legal
action in some cases.
What Should You Do If You Don’t Have a
TIN?
If you’re running a business without a TIN, the best thing you can do is to register for one as soon as possible. The process is relatively straightforward, and it will save you a lot of headaches in the long run.
Conclusion: Don’t Let Higher Withholding
Tax Rates Catch You Off Guard
The
new Deduction of Tax at Source (Withholding) Regulations, 2024, have brought
some significant changes to the way withholding tax is applied in Nigeria,
especially for businesses without a TIN. If you’re running a business without a
TIN, you could be subject to higher withholding tax rates, difficulty in
claiming tax credits, and even compliance penalties. The best way to avoid
these issues is to register for a TIN as soon as possible.
Remember,
having a TIN isn’t just about complying with the law—it’s also about protecting
your business and ensuring that you’re not paying more tax than you need to.
So, if you haven’t already, take the time to register for a TIN and regularize
your tax status. Your business will thank you in the long run.
In the end, the new withholding tax rules are all about encouraging compliance and ensuring that everyone pays their fair share of taxes. By getting a TIN and staying on top of your tax obligations, you’re not just avoiding penalties—you’re also contributing to the growth and development of Nigeria’s economy. And that’s something we can all get behind.
Call to Action:
Register for Your TIN Today!
If you’re ready to take the next step and register for
a TIN, visit the nearest FIRS or SIRS office today. For more information on the
registration process and required documents, you can also visit the official
FIRS website at www.firs.gov.ng.
Don’t let higher withholding tax rates and compliance penalties catch you off
guard—get your TIN now and ensure your business is fully compliant with
Nigeria’s tax regulations.
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