Tax expert urges Nigerians to distinguish between VAT and WHT

VAT is a consumption tax imposed on taxable goods and services, while WHT is generally a mechanism for collecting income tax at source and in advance

By Moses Okorie

A tax expert, Ben Okonkwo, FCA, has called for greater public understanding of the differences between Value Added Tax, VAT, and Withholding Tax, WHT, to reduce confusion and compliance errors among businesses, contractors and consumers.

Okonkwo, the Bursar of the African University of Science and Technology (AUST), Abuja, said the two mechanisms are often poorly understood because they can appear together on the same payment trail, despite serving fundamentally different purposes.

According to a comprehensive report he published on the occasion of Nigeria’s 66th Independence Anniversary on Thursday, Okonkwo said, VAT is a consumption tax imposed on taxable goods and services, while WHT is generally a mechanism for collecting income tax at source and in advance.

Read full report: https://www.linkedin.com/pulse/nigeria-66-withholding-tax-vat-still-poorly-ben-okonkwo-fca-6evcf

He explained that VAT is normally added to the price of taxable supplies, collected by the supplier and remitted to the tax authority, with the standard rate remaining 7.5 percent.

WHT, on the other hand, is deducted by the payer from an amount due to a contractor, supplier or service provider and remitted to the tax authority on the recipient’s behalf.

Okonkwo stressed that WHT should not automatically be regarded as an additional tax charged to the customer, noting that, ultimately, the amount deducted is credited against the recipient’s income tax liability.

He said the simplest way to distinguish the two is that VAT generally goes up on an invoice, while WHT generally comes down from the amount paid to the recipient.

The expert also highlighted changes introduced by recent tax reforms, including adjustments to WHT rates, input VAT recovery, small-business provisions and electronic invoicing.

He urged businesses and contractors to properly classify transactions and comply with applicable tax rules, particularly where WHT rates and exemptions depend on the nature of the transaction and the status of the recipient.

Okonkwo said clearer public understanding of the distinction between VAT and WHT would help businesses avoid invoicing mistakes, manage cash flow and meet their tax obligations as Nigeria’s tax system continues to evolve.