The Tax Appeal Tribunal ("TAT") Lagos Zone on 30 November 2020 decided in the case between Tetra Pak West Africa Limited ("Tetra Pak") and Federal Inland Revenue Service ("FIRS") that sales in the ordinary course of a company's business are exempt from withholding tax (WHT) in line with the provisions of the WHT Regulations pursuant to the Companies Income Tax (CIT) Act, Cap. C21, Laws of the Federation of Nigeria (LFN), 2004 (as amended) (CITA).

It is important to note that whilst it is generally understood that sales in the ordinary course of business are exempted from WHT deductions in Nigeria, the main issue is the definition of the phrase. The WHT Regulations itself does not help matters since the term is neither defined nor guidance provided for its application. It is generally believed that everyone acts in the course of its ordinary business. Due to different interpretations by taxpayers and the tax authorities alike, Tetra Pak approached the courts for clarification.

The focal point of this article is not to discuss what the definition of the phrase should be or the general definitional uncertainties in the WHT regime in Nigeria, or the decision reached by the TAT in the above referenced case. The authors of this article noted that the major reason why Tetra Pak wanted an adjudication on the issue was due to Tetra Pak's exposure to huge unutilized WHT credit. This is buttressed by point "c" of the issues for determination put forward by the Appellant in the referenced case – "whether the Appellant is not entitled to refunds from the Respondent of excess WHT deducted by its customers". This article therefore seeks to examine how FIRS can help taxpayers reduce the incidence of excess WHT suffered by taxpayers on their respective cash flows.

WHT Regime in Nigeria

The Federal Republic of Nigeria operates a WHT regime which is applicable to payment for certain transactions usually referred to as qualifying transactions. The rate which ranges between 2.5% and 10% is dependent on the nature of qualifying transaction and contractual agreement between the vendor and service beneficiary.

The qualifying transactions, based on the Income Tax Acts and various WHT Regulations, include:

  • Passive incomes such as dividends, interest, rent and royalty.
  • Other vendor transactions including all aspects of building, construction and related activities.
  • All types of contracts and agency arrangement, other than sales in the ordinary course of business.
  • Consultancy, professional, management and technical services and commissions.

FIRS administers the WHT deducted from payments due to incorporated companies while those from individuals and partnerships are administered by the State Internal Revenue Service (SIRS) of the states in which the individual/partnership is resident.

WHT represents either advance or final payment of income tax. When it is advanced payment, WHT suffered at source is available as a credit against the income tax liability of the taxpayer for the relevant year of assessment. On the other hand, if WHT suffered is more than the income tax liability, the excess, also known as "unutilized WHT Credit", can either be refunded by cash or carried forward to offset future income tax liability of the taxpayer.

The refund process is however usually arduous, and this discourages most taxpayers from seeking a refund as the amount of resources that would be put into such process would further deplete the possible cash refund that can be obtained.

We do not believe that it is the legislator's intention to expose taxpayers to additional taxes. This is premised on Sections 81(4) of the CIT Act and 73(3) of the PIT Act quoted below:

In determining the rate of tax to be applied to any payments made to a company, the Board may take into account -

  1. any assessable profits of that company for the year arising from any other source chargeable to income tax under this Act; and
  2. any income tax or arrears of tax payable by that company for any of the six preceding years of assessment.

Based on the above, it is clear that the WHT rate should be determined by the relevant tax authorities after considering the assessable profits of the taxpayer for the year (excluding those arising from dividend, interest, rent and royalty) and the income tax or arrears of tax payable by the taxpayer in the last six years of assessment. This practice would ensure that the WHT rates applicable to the income of a taxpayer is not considerably higher than the income tax payable by such taxpayer since the income tax profile of the taxpayer will be observed. This in essence would minimize the instances of unutilized WHT credit.

Hence, it is not clear why the WHT rates in Nigeria have remained the same in the last twenty-seven years except for the WHT rate on construction contracts (in respect of certain projects) which has been subjected to frequent changes even up to 2020, the latter being through the Finance Act 2019.

Going by Sections 81(4) of the CIT Act and 73(3) of the PIT Act, it stands to reason that WHT rate should be evaluated on a yearly basis or not later than every six years.

Thus, in ensuring that optimization of tax collection through WHT collection is not to the detriment of taxpayers as a tax system ought to be fair and equitable, it may just be the time for the tax authorities to leverage big data analytics to assess if there is need to revise the prevailing WHT rates. The changes can then be implemented through the current annual appropriation Finance Bill arrangement.

Big Data Analytics

Big Data analytics is the science of analyzing data collected and transforming this data into actionable and predictive insights. Data comes from a lot of sources including tax documents such as the yearly income tax returns, tax audit or investigation reports to mention a few that are applicable to the subject matter.

Presently, taxpayers file their income tax returns every year of assessment and the returns consist of information such as the revenue of the company, the assessable profit, taxable profit, and the CIT payable. The FIRS has also moved the filing of these income tax returns to its online filing portal – TaxPro Max.

Hence, this information using incorporated companies as a case study can readily be spooled per revenue size of the Company which is currently grouped into Start-ups and small enterprises (companies with annual gross turnover of not more than N25million), Medium-sized Companies (i.e., companies whose turnover exceeds N25million but is less than N100million) and Large Companies (i.e., companies with annual gross turnover of N100million and above). Upon obtaining the information per revenue size, the data obtained can then be grouped into sectors.

Analyzing the data of taxpayers in this manner would give the FIRS the necessary insight on whether the WHT applicable to the income of taxpayers (especially those with unutilized WHT credit) is what it ought to be. Where the rates estimated from this exercise is lower or lower than what it currently is, then the current rates should be revised.

To drive the point home, let's consider a taxpayer whose revenue is subjected to WHT at 10%. We have provided the details of the taxpayer's revenue, assessable profit and CIT payable over the last six years the table below:

Parameters Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
Assessable Profit ₦20m ₦22m ₦25m ₦27m ₦28m ₦30m ₦34m
CIT/Minimum Tax ₦6m ₦6.6m ₦7.5m ₦8.1m ₦8.4m ₦9m ₦10.2m
Revenue ₦100m ₦120m ₦150m ₦170m ₦175m ₦190m ₦200m
Current WHT Rate 10% 10% 10% 10% 10% 10% 10%
WHT Amount ₦10m ₦12m ₦15m ₦17m ₦17.5m ₦19m ₦20m
(Unutilized WHT Credit)/Tax Payable (₦4m) (₦5.4m) (₦7.5m) (₦8.9m) (₦9.1m) (₦10m) (₦9.8m)
Adjusted WHT Rate 6.0% 5.5% 5.0% 4.8% 4.8% 4.7% 5.1%
WHT Amount (₦6m) (₦6.6m) (₦7.5m) (₦8.1m) (₦8.4m) (₦9m) (₦10.2m)
(Unutilized WHT Credit)/Tax Payable NIL NIL NIL NIL NIL NIL NIL


The taxpayer illustrated above would have continued to accumulate WHT credits that may never be utilized where the FIRS does not review the WHT rate applicable to the services rendered by the taxpayer and continues to use the "Current WHT Rate".

As demonstrated above, where the FIRS uses the data of taxpayers to review the applicable rate of WHT on qualifying transactions on a yearly or at most, every six-year, the incidence of excessive tax payment through unutilizable WHT credit can be significantly reduced, if not eliminated.


WHT should be a means to check tax evasion and not increase the tax burden of companies. Where the FIRS adopts this initiative, it will serve as a proof to taxpayers that the tax authority is not just about tax collection but also committed to administering the provisions of the tax laws to improve the ease of doing business in Nigeria.

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.