INFORMATION  No: 9902   
  CIRCULAR  Date of 1st Review: 1st January, 1999 
 The purpose of this circular is to draw the attention of the general public, ministries, parastatals and other agencies of government at Federal, State and Local levels to the government policy on the collection procedures for Withholding Tax (WT) and the Value Added Tax (VAT) by government and related establishment. The circular aims to clear some doubts and misgivings about the status scope, nature and objectives of the two tax concepts. It also spells out the guidelines on the collection procedures for the two tax regimes. This information circular is a review of the information circular No. 9502 of 20th February, 1995. The purpose of the review is to update the content of the circular to meet current practices and changes in rates of withholding tax.
The following facts are emphasized in this circular about collection of VAT and WT from ministries, parastatals and other agencies of government.
(i)                 Withholding tax is not a separate type of tax but a payment on account of income tax and it is available as set-off against tax assessment of relevant periods;
(ii)               Ministries, parastatals and agencies of government do not bear the burden of WT but they merely act as gents of collection of the tax;
(iii)             Value Added Tax is a tax on consumption of VAT able goods and services’
(iv)             As consumers of goods and services, ministries, parastatals and other agencies of government pay VAT on their consumption in addition to the contract price of the item consumed by them and, for the contractor to render monthly returns, Government agencies must obtain receipts from FIRS for the VAT paid on behalf of the contractors. The FIRS will issue the receipt in the name of the government agency which will in turn issue its own receipt along with photocopy of receipt received from FIRS to the contractor’
(v)               The VAT receipt is used by the contractor to make his monthly output and input tax return;
Nigeria  Published under the authority of the
               Chairman/Chief Executive of the
Federal Inland Revenue Service
(vi)             Applicable rates:
(a)     For withholding tax:
   WT Rate                            WT Rates
       Types of payment                                             for Companies                    For individuals
        *    Dividend, Interest & Rent                                10%                                 10%
      *    Royalties                                                      15%                                 15%
      *    Commissions, Consultancy, Professional, 
      Technical & management Fees                                10%                                  5%
     *    Building, Construction & related activities              5%                                   5%
     *    Contract of Supplies & Agency arrangements         5%                                   5%
     *    Director’s Fees                                                 10%                                  5%
(b)     For VAT
5% for all VATable items of goods and services except where they are specifically exempted by the VAT Decree. For details of exemption, see FIRS Information Circular on items exempted from VAT.
2.                  Withholding Tax and Value Added Tax
There is need to draw attention to the fundamental differences between Withholding Tax and Value Added Tax so that the mechanics of the two tax concepts can be clearly understood.
When the income on which withholding tax is deducted at source is finally brought to the notice of the tax authority and appropriate tax is computed, credit is given for the withholding tax deducted at source on the presentation of the original withholding tax receipts (Credit Notes). The taxpayer will be required to pay only the balance of the tax due after the final determination of the tax liability and the grant of credit for the withholding tax suffered at source. Withholding tax is therefore nothing more than a collection machinery to curb tax evasion. It is not a separate tax on its own.
In contrast, Value Added Tax is a separate type of tax. VAT is a consumption tax payable on the goods and service consumed by any person whether government agencies, business organizations or individuals. The target of VAT is consumption of goods and services and unless an item is specifically exempted by law, the consumer is liable to the tax.
   Therefore all agencies of government, organization that are normally exe4mpled from income tax are expected to pay VAT on the goods and services consumed by         them.
3.                        Collection Arrangement by government agencies:
(a)                Withholding Tax:
(i)                 The rate at which tax is to be withheld on payment for contact of supplies, construction and allied service has been increased from 2.5% to 5% with effect from 1st January 1995 for limited liability companies; individuals and non-corporate bodies.
(ii)               The withholding tax on consultancy fees, technical fees management fees directors fees commission and all service fees other than those mention in sub-paragraph(i) above remains at 10% when payable to limited liability companies the applicable rate for such type of payment to individual and non-corporative bodies is 5%.
(iii)             Withhold Tax rate for dividend, interest and rent whether paid to companies or individuals is 10% the applicable rate on royalties remains at 15%. The withholding tax on dividend is now the final tax when paid.
(iv)             Withholding taxes on individuals who are non-resident in Nigeria, resident of federal capital territory of Abuja, members of the police & Armed forces and foreign officers are payable to the FIRS while withholding taxes on other individuals are payable to the authority of the state (State Internal Revenue ) where the individuals reside.
(v)               The term “contact and agency arrangements” covers all forms of supplies, deliveries or like through competitive bidding, tenders, LPOs or other similar arrangement whether oral or written. The term does not cover across-the-counter cash sales or supplies in the ordinary course of business.
(vi)             The currency in which the tax is to be paid is the currency the contact was awarded and in which the tax was deducted.
(vii)           Payment withholding taxes are to be made through designated banks. The Tellers must be made payable to:
“The Federal Government of Nigeria-FIRS-Withholding Tax Account.”
(viii)         (a) The payment should be accompanied with a schedule showing
         The following details:-
·         Name and address of each contractor /taxpayer
·         The registration number or the FIRS file reference number of each contractor /taxpayer.
·         The value of the contract; and
·         The amount of tax withheld
(b)               In addition, obligation of the Agent of dedication include;-
·         dedication of the tax when payment is credited or paid, whichever comes first;
·         the application of the correct rate to each dedication;
·         the payment of the tax to the relevant designated bank within 30 days;
·         the issuance of receipt to the person who suffered the deduction to cover the amount dedication;
·         submission to the relevant tax authority of a schedule showing details in (viii a)above.
(ix)             In the case of individuals, sole proprietorship, partnership, and other business enterprises which fall within the tax jurisdiction of State Governments, payment should be made to the States concerned.
(x)               The time within which the withholding tax is to be remitted to the FIRS is 30 day from the date the tax is withheld or the date the duty to deduct arises, whichever is earlier.
(xi)             Any default in the implementation of the tax carries heavy penalties. Failure to deduct withholding taxes and failure to remit taxes withheld are punishable on conviction by a fine of the 200% of the tax not withheld or remitted. 
(xii)           Government will not condone any lapses in the implementation of these directives. It is important to clarify that statutory sanctions will be invoked where any agency of government fails to deduct or deduct at less than the applicable rate or, having deducted, fails to remitted the withholding tax within the statutory time limit. Such Sanctions include the imposition of penalty and interest at commercial rate on the amount not withheld, under-deducted or nor remitted, as the case may be the FIRS has the statutory power to authorize the accountant- deducted or nor remit, as the case may be. The FIRS has the statutory power to authorize the Accountant-General of the Federation to withhold such amount together with the accruing penalty and interest from any allocation due to such government ministry or agency.
(b)     Value Added tax;
                                                                                i.      All government agencies are now to register as VAT agents. They are to make necessary provisions for the payment of VAT in their award of contact. The amount of the VAT should be remitted to the first at the same time the contract. Payment is being made of the contractor.
                                                                              ii.      The submission of evidence of VAT registration by a contractor is a requirement for being allowed to bid for a contract with ministries, parastatals and agencies of government at all levels.
                                                                            iii.      Payment for VAT are to be made through designated banks with instruments/tellers-payable to:
                                                ‘‘The federal Government of Nigeria – FIRS – VAT Account’’
The payment documents should be sent to the nearest Local VAT Office accompanied with a schedule showing the following details:
·         name, address and VAT registration number for each contractor/taxpayer
·         the month of transaction: and
·         the VAT payable.
(iv)    All contractors are still to render VAT returns to the FIRS on          the contractors awarded to them by government agencies and       necessary adjustment will be made for the output tax collected       from the source to arrive at a net VAT payable or refund due –          see box 13 of the appendix.
The agencies of government referred to in this circular include a ministry, a department, a parastatal, an institution or any agencies of the Federal, State or Local Government.
4.                        Dual Tax Roles of Ministries and Other Government Agencies:
For the avoidance of doubt, it is necessary to clarify that the new policy of government imposes tax roles on any agency awarding contracts. Such an agency is to act as:
                                            i.      agent of government for the collection and remittance of withholding tax; and
                                          ii.      agent of government for the collection and remittance of VAT.
This implies that two (2) separate cheques – one foe the payment of a withholding tax and the other for the payment of VAT – are now to be issued monthly by each agency in respect of contract payment. The FIRS is most grateful to each agency for the additional responsibility.
For administrative convenience, the cheques are to be forwarded to the offices of FIRS nearest to a particular agency latest by the 1st day of every month. Accredited officials of the FIRS will also be going round to enforce compliance.
5.                  The FIRS is using this medium to solicit for your maximum co-operation in the new spirit of the drive of government for more buoyant revenue. All government agencies should ensure that they compel the heads of their accounts departments; the offices of the Sub-Treasurers of the Federation and Federal pay Offices to enforce compliance with the provisions of this Information Circular.
6.                              For any further information or clarification’s please direct your enquiries to: 
                                                         Office of the Chairman
                                                         Federal Inland Revenue Service
                                                         Headquarters, Revenue House
                                                         522, Sokode Crescent
                                                         Off Dalaba Street
                                                         Zone 5, Wuse
Tel: 09-5236601         





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