Automated Market Makers (AMMs) are a decentralizedDecentralization refers to the property of a system in which nodes or actors work in concert in a distributed fashion to achieve a common goal.
Click to read more → exchangeBusinesses that allow customers to trade cryptocurrencies for fiat money or other cryptocurrencies.
Click to read more → protocol that allows users to trade cryptocurrencies without needing traditional order books. Instead of relying on buy and sell orders placed by users, AMMs use smart contracts and liquidityLiquidity indicates how easy it is to convert a cryptocurrency into cashCash is the most liquid form of money: physical coins and banknotes in the most narrow sense of the term.
Click to read more → quickly — and whether this can be achieved without the assetAssets are the resources that an organization can use to generate revenue or benefit.
Click to read more →’s value suffering.
Click to read more → pools to facilitate trades. If the term “Virtual Automated Market Makers (vAMMs)” has emerged since my last update, it could refer to an evolution or extension of the AMM concept with additional virtual or programmable features. These decentralized exchange protocols utilize liquidity pools and algorithms to enable users to trade digitalDigital technologies are these electronic tools that have the ability to generate, store or even process data.
Click to read more → assets directly from their wallets. Popular examples include Uniswap […]
Click to read more →Withholding Tax (WHT) in Nigeria is not an extra tax on top of your payment. It is simply a system where a portion of the money you earn is temporarily held back and paid directly to government ahead of time.
It is basically an advance tax deduction.
So instead of waiting until the end of the year to collect full tax, the government deducts part of your income immediately through whoever is paying you.
For example, if a company pays you ₦1,000,000 for a contractIn traditional finance, a contract is a binding agreement between two parties. In cryptocurrencies, smart contracts execute functions on the blockchainA distributed ledger system. A sequence of blocks, or units of digital information, stored consecutively in a public database. The basis for cryptocurrencies.
Click to read more →.
Click to read more → job, they may deduct 5% or 10% depending on the law that applies to your category.
This deduction is your withholding tax, and it counts towards your final income tax.
The Purpose of Withholding Tax
Government uses withholding tax mainly for two reasons:
- To prevent tax evasion by ensuring government collects revenue early
- To spread tax payment over the year instead of piling everything at year end
So withholding tax is not a separate tax, it is part of your future income tax.
Applicable Rates for Withholding Tax in Nigeria
Withholding tax rates vary depending on:
- The type of transaction
- Whether the recipient is an individual or a company
Here are common examples:
| Transaction Type | Individual Rate | Company Rate |
|---|---|---|
| Rent (Land/Building) | 10% | 10% |
| Royalties | 5% | 10% |
| Consultancy/Professional Services | 5% | 10% |
| Contract of Supplies | 5% | 5% |
| Contract of Construction | 5% | 5% |
| Dividends | 10% | 10% |
| Directors Fees | 10% | 10% |
These are standard reference rates. Newer Finance Acts may sometimes introduce specific updates, but the above table covers most everyday Nigerian business situations.
How to Calculate Withholding Tax Step by Step
The WHT calculation formula is simple:
Total Payment × Applicable Rate = Withholding Tax
Example 1:
A company pays an individual ₦1,200,000 for a consultancy job.
Applicable rate for consultancy to individual is 5%.
WHT = ₦1,200,000 × 5% = ₦60,000
Meaning:
The individual will receive ₦1,140,000 while ₦60,000 goes to tax authority.
Example 2:
A company pays another company ₦10,000,000 for construction work.
Applicable rate = 5%.
WHT = ₦10,000,000 × 5% = ₦500,000
So ₦500,000 should be withheld and paid to FIRS (since it’s a company transaction).
Who Remits the Withholding Tax?
The person or business making the payment is responsible for deducting and remitting the withholding tax.
So if someone pays you for a service, they must:
- deduct the WHT
- remit it to the IRS
- issue a WHT credit note
This credit note is very important because it is your evidence that tax was paid on your behalf.
Where to Pay Withholding Tax
For companies, withholding tax is paid to the Federal Inland Revenue Service (FIRS).
For individuals and partnerships, withholding tax is paid to the State Internal Revenue Service of the beneficiary’s state of residence.
Example:
If an individual in Lagos earns income, even if the payer is located in Abuja, the WHT for that income should be remitted to Lagos State IRS.
Why Withholding Tax Matters for Nigerian Taxpayers
WHT matters because:
- It helps record your tax compliance
- It prevents backlogA collection of pending tasks in an organization is referred to as a backlog.
Click to read more → at year end - It counts toward future tax clearance processing
If you apply for a Tax Clearance Certificate (TCC), one of the first documents they ask for is evidence of withholding tax credit notes.
So every credit note is literally money in your tax record.
Key Takeaways
Once you know the rate that applies to your transaction, calculating withholding tax is very straightforward:
Just multiply the invoice amount by the rate applicable.
WHT is not an extra penalty, it is part of your normal income tax, but collected earlier.
The Nigerian tax authorities use this method to ensure compliance and reduce tax leakages on high-risk transactions like consultancy, construction and rent.