Supplier tax deduction or withholding tax

Requirement

In Nigeria, the withholding tax is not a distinct tax type. No specific legislation exists for the withholding tax, which is only a mechanism for the collection of other taxes. Consequently, the application of withholding tax is provided for in the enabling law of other tax types:

• Section 81 of the Company Income Tax Act
• Section 54 of the Petroleum Profit Tax Act
• Section 73 of the Personal Income Tax Act
• Section 13 of the Value Added Tax Act

Persons who are subject to various tax types may be subject to withholding tax deductions for the purpose of offsetting their tax liabilities. Withholding tax deductions are regarded as advance payments, or payments on account, of the relevant tax liability that arises from the tax returns of the concerned period.

For payments to taxable persons who benefit from an income, the withholding tax is deducted at the point of making payment. The tax is withheld by the payee and the net amount is then paid to the beneficiary through the designated banks.

The amount that is deducted at the point of payment is remitted directly to the Nigerian Federal Inland Revenue Service (FIRS) through a designated bank in a prescribed format and in the name of the person who is subject to the deduction.

M3 solution

Four methods are possible for processing and controlling supplier tax deductions, accounting and reporting. The selected method is determined by country-specific rules:

• The Alt1 method, where supplier payments are reported for tax purposes, but no tax deduction is made
• The Alt2 method, where tax deductions are made on the supplier payment and then reported to tax authorities
• The Alt3 method, where supplier tax deductions are recorded on invoice entry, but are accounted for only when the supplier payment is recorded
• The Alt4 method, where the tax deduction is accounted for at the entry of the supplier invoice

Using the Alt4 method, any tax exemption letter that is received from suppliers can be recorded in the supplier master record.

For Nigeria, the process is manual in M3.

Configuration guidelines

Program ID	Program name	Description or comment
APS905	Settings - Accounts Payable	Clear the 260 Withholding tax using flexible service codes check box.
CRS063	Supplier Service Code. Open	Create the service code with the withholding tax percentage. Connection with Supplier.
CRS624/F	Supplier. Define Purchase & Financial	Specify the default service code. See the settings for (CRS063). Set the Tax withhol mtd field (Tax withholding method) to 3.
CRS395	Accounting Rule. Set	Configure accounting rules for accounting type 396.
APS037	Supplier Tax. Open Exemption Letter
APS425	Supplier Tax Report. Display Invoices
APS430	Supplier Tax Report. Create Proposal
APS555	Supplier Tax. Print Details