Analysts at PricewaterhouseCoopers (PwC), a leading global economic research and fiscal consulting services provider, have charged the Federal Inland Revenue Service (FIRS) to address some issues of concern raised by its recently issued Circular to guide implementation of the Withholding Tax (WHT) Regulations 2024 in the country.
The federal revenue agency had on February 24 this year issued a Circular outlining guidelines for the implementation of the Deduction of Tax at Source (Withholding Tax) Regulations, 2024, which became effective on 1 January 2025.
Specifically, the Circular covered the scope of the companies affected in the WHT Regulations, when to deduct the WHT, Small companies, Sanctions for fake receipts, Exemptions, Penalties, and Power of the Accountant-General of the Federation (AGF) to deduct unremitted WHT, among others.
The PwC, in its latest Tax Alert on the FIRS WHT Regulations circulated to our correspondent on Monday, noted that though the Circular included non-resident companies (NRCs) as entities also required to deduct WHT but that was not clear whether this requirement extended to NRCs that do not have a fixed base or dependent agency arrangement in Nigeria.
The firm’s experts stated that expected that Nigerian laws should ordinarily not apply to such NRCs based on jurisdictional expedience, adding that when considering different means of settlement, there is also the issue of the feasibility of deducting tax at source in the case of a barter or exchange.
They pointed out that considering that tax is borne by the supplier, the double coincidence of wants in barter or exchange transactions created ambiguity about who should deduct the tax because both parties are simultaneously giving and receiving value.
The experts queried that would both parties then be required to deduct WHT based on the fair market value of the goods or services they receive?
They suggested that it would have been preferable if clearer guidelines were included in the Circular in this regard, adding that based on the FIRS Circular, WHT exemption will not apply on fees or commissions retained upfront by unlicensed agents, even though the licensing requirement is not specifically stated in the Regulations.
The analysts stressed that this requirement may be too categorical and can be considered as a restriction not imposed by the Regulations.
Also, the tax experts noted that despite the powers given to the tax authorities in Paragraph 11 of the Regulations to issue guidelines for the effective implementation, the guidelines must still align with the overarching legal framework and cannot amend or supersede its legal basis.
In addition, they maintained that the circular did not articulate when a receipt issued to a beneficiary will be deemed fake or counterfeit, querying for instance, that will the WHT receipt be deemed fake only when it has been falsified by the beneficiary?, and that will there be any measures put in place to prevent falsification of WHT receipts for transactions between related parties?
The firm’s analysts stated that they expected that a beneficiary should not be penalised for relying on erroneous WHT receipts duly issued by the customer.
This is even as they pointed out that Circular did not provide clarity on several administrative issues such as how beneficiaries of tax deducted are to claim WHT credit using customer-issued WHT receipts.
Other grey areas they observed in the FIRS’ WHT Circular included the application of double rates where suppliers do not have a valid TIN and how to remit such WHT, the application of different rates on Directors’ fees as against 10% as specified in the Personal Income Tax Act (PITA), the practicality of deductions to be made by NRCs and the process for obtaining accumulated WHT refunds.
The analysts anticipated “that the FIRS will issue additional circulars addressing the issues raised and other modalities not covered in this Circular. Some of these issues may also be addressed by clarifications issued by the Joint Tax Board (JTB).”
