This is the first part in a series, on a conversation between a Doctor and an Accountant.

To provide some context, the Doctor is new to Nigerian law of taxation in general.

The Doctor is Efe and the accountant is Bisola (any resemblance to real life characters is purely co-incidental)


Efe: Hello Bisola, how is it going?
Bisola: Fine, thank you. Trust you are fine too.

Efe: I am great. Thanks! Please I was going through my contract and was wondering if you could provide clarity on a certain clause to me. It’s the “Taxes” part of the contract and it states:
“Party A shall pay Party B, the amount of N100,000, being the consideration net of all taxes..”
Efe: Please which type of tax is being referred to in this clause?

Bisola: Oh that’s easy. It is withholding tax (WHT)!

Efe: What’s WHT? Is it a special type of tax specifically for contracts?
Bisola: Well, not exactly. WHT is an advance payment of income tax, and not a distinct tax on its own. There are primarily three basic income taxes in Nigeria namely: Personal Income Tax (PIT) for individuals, Companies Income Tax (CIT) for incorporated companies, and Petroleum Profits Tax (PPT) for upstream petroleum companies. So WHT is simply an advance payment of any of these taxes.

Efe: Interesting. So how does it work in practical terms?
Bisola: Simple. Well, not so simple when we get into the details. Let’s use the parties in your contract as an example. Just forget the “net of taxes” part for a second. When party A is paying party B the N100,000, party A will deduct N5,000 (assuming a WHT rate of 5%) and pay N95,000 to party B. Party A will then pay the N5,000 deducted to the tax authority on behalf of Party B (serving as Party B’s income tax). Assuming Party B has an income tax of N10,000 to pay when the income tax is due, Part B will only pay ...

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Special Guest Post by Babatunde Akin-Moses

Babatunde is a tax specialist with several years of experience spanning across 2 of the Biggest 4 accounting firms in Nigeria. His areas of interest include fiscal policy, oil and gas, and entrepreneurship.



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Good job!

Interesting waiting for part 2