The federal government has gazetted an amendment to the Withholding Tax Regulations 1997. The amendments have a commencement date of 1 January 2015. The changes introduced are:

  1. The rate at which tax is to be deducted from "All aspects of building, construction and related services" is now 2.5% (previously 5%)
  2. Related activities exclude survey, design and deliveries. This means that these categories of construction related activities will continue to attract withholding tax at 5%

The reduction in rate was necessitated by the low margin being earned by construction companies and the inability of FIRS to pay refiund for excess withholding tax credit notes.

The excluded services are considered as high margin but it will be necessary for the FIRS to provide clarification in terms of what constitutes these excluded services especially "Deliveries" which may be open to diverse interpretations. 

The retroactive commencement date of the changes may not be practicable to apply where withholding tax has already been deducted by payers before the regulations were published.

Given that the amendment relate to companies taxable under the Companies Income Tax Act, other entities not taxable under CITA will continue to suffer withholding tax at the rate of 5%. It is not clear if this was intended.

The FIRS commenced the process to review the WHT Regulations in 2013. Other desirable changes to the WHT Regulations to address key issues such as "ordinary course of business" are yet to be finalised.

I have uploaded a copy of the Regulations for your information and our tax alert on the subject.

Download WHT Regulation Amendment 2015

Download Reduction of WHT rate on construction contracts

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.