FEDERAL INLAND REVENUE SERVICE
CIRCULAR Date of 1st
FEDERAL INLAND REVEN EUCI VRESE
…it pays to pa y tax
SUBJECT: GUIDELINES ON THE COLLECTION PROCEDURE FOR WITHHOLDING TAX (WT)
AND VALUE ADDED TAX (VAT) BY MINISTRIES, PARASTATALS AND OTHER
AGENCIES OF GOVERNMENT
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 government on the government policy
on the collection procedures for Withholding Tax (WT) and the Value Added Tax (VAT) by
government and related establishments. 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 emphasised 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 agents 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
(v) The VAT receipt is used by the contractor to make his monthly output and input tax return;
(vi) Applicable rates:
(a) For withholding tax:
Types of payment WT Rate For WT Rates For
Companies Individuals 10%
* 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%
* Directors’ Fees 10% 5%
(b) For VAT
5% for all VATab1e 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
Published under the Authority of the
Chairman/Chief Executive of the
Federal Inland Revenue Service. 2
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.
Withholding Tax is an advance payment of income tax and the purpose is to bring the prospective
taxpayer to the tax-net, thereby widening the income tax base. In other words, the withholding tax system is
used to track down taxpayers and the incomes which may otherwise not be reported by them.
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 services consumed by any person whether government agencies, business organisations 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, organisations and persons that are normally exempted 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 payments for contract of supplies, construction
and allied services has been increased from 2.5% to 5% with effect from 1st
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 mentioned in sub-paragraph (i) above
remains at 10% when payable to limited liability companies. The applicable rate for such
types of payment to individuals and non-corporate bodies is 5%.
(iii) Withholding 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, residents 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 tax
authority of the state (State Internal Revenue Service) where the individuals reside.
(v) The term “contract and agency arrangements” covers all forms of supplies, deliveries or
the like through competitive bidding, tenders, LPOs or other similar arrangements 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 contract was awarded and in
which the tax was deducted. 3
(vii) Payments of withholding taxes are to be made through designated banks. The Tellers must
be made payable to:
“The Federal Government of Nigeria -FIRS – Withholding Tax
(viii) (a) The payment should be accompanied with a schedule showing the following
* Name and address of each contractor/taxpayer
* The registration number or the FIRS file reference number of each contractor
* The value of the contract; and
* The amount of tax withheld.
(b) In addition, obligations of the Agent of deduction include: -”
* Deduction of the tax when payment is credited or paid, whichever comes first;
* The application of the correct rate to each deduction;
* 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
• Submission to the relevant tax authority of a schedule showing details in (viii a)
(ix) In the case of individuals, sole proprietorships, partnerships and other business
enterprises which fall within the tax jurisdiction of State” Governments, payments
should be made to the States concerned.
(x) The time within which the withholding tax is to be remitted to the FIRS is 30 days
from the date the tax is withhold or the date the duty to deduct arises, whichever is
(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 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 deducts at less than the applicable rate or, having
deducted, fails to remit 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-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 contract. The amount
of the VAT should be remitted to the FIRS at the same time the contract payment is
being made to the contractor.
(ii) The submission of evidence of VAT registration by a contractor is now 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
• the month of transaction; and
• the VAT payable
All contractors are still to render VAT returns to the FIRS on the contracts awarded to them by government
agencies and necessary adjustments 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 other 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 deduction 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 for 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
payments. 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 a 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
FEDERAL INLAND REVENUE SERVICE