Mind Your Tax Affairs: Deduction of Tax at Source

Entities and institutions are required by law to withhold or deduct tax at source and remit the tax so withheld to the relevant tax authority. The three types of taxes required to be deducted at source are Companies Income Tax (CIT), Value Added Tax (VAT) and Personal Income Tax (PIT).

Companies Income Tax is withheld at source from a company when it engages in contract of supplies or renders services to earn management fee, technical fee, consultancy fees, commission and royalty. Also, Companies Income Tax is withheld at source when a company earns rental income, interest income and dividend. The withholding tax rate is 5%, while the withholding tax rate for other transactions is 10%.

Value Added Tax is withheld at source from a company when it engages in contract of supplies or render services to a Government Ministry, Department or Agency, or to a company engage in oil and gas exploration, marketing or services business. The VAT law requires such government institutions and business entities to withhold VAT charged on the goods or services consumed by them, and remit the VAT so withheld to the Federal Inland Revenue Service (FIRS). The VAT rate is 5%.

Personal Income Tax is withheld at source from individuals – employees and directors of companies as Pay-As-You-Earn (PAYE). Personal Income Tax is also withheld from an individual who carry on business as an enterprise or render services to earn management fee, technical fee, consultancy fee, or individuals that earns rental income, royalty, commission and dividend. The withhold tax rate for Interest, Dividend and Directors fee is 10% while the rate for contract of supplies and other services is 5%.

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