The law treats two different failures separately here. Not deducting tax at all is one problem. Deducting it and then not paying it over is another, with its own penalty.
Failing to deduct in the first place
Take a business that pays a supplier in full, with no tax withheld at all. It faces a penalty of 40% of the amount not deducted, worked out on the amount that should have been deducted.
It is the bigger one-off hit of the two, though a remittance left unpaid for long enough can end up costing more once the yearly charge and interest stack up. It applies to anyone obliged to deduct tax who simply does not.
Deducting the tax, then not remitting it
A different penalty applies once tax has actually been deducted but not paid over to the NRS. 10% a year of the amount not remitted, plus interest, charged against the unremitted amount.
This penalty grows the longer the tax sits unremitted, since it is worked out per year rather than as a single fixed charge.
Why the deadline drives both risks
The 21st day of the following month is the date that starts the clock on the remittance penalty. Miss it, and the yearly penalty and interest begin running from that date.
Our piece on the remittance deadline itself covers the added wrinkle of a different date some state authorities quote.
When a conviction is added on top
The law does not stop at an administrative penalty for a serious case. A conviction for failing to remit deducted tax adds its own consequences: up to three years in prison, a fine of at least the amount involved plus up to half again, or both.
This sits on top of, not instead of, the administrative penalty already described. Whether a specific case is likely to reach that point is a question for a tax lawyer, not a general guide.
A quick example
Take a business that deducts ₦200,000 in WHT from a supplier payment, for example. It sits on that amount for a full year past the deadline. It then faces 10% a year of the amount not remitted, plus interest on that ₦200,000, on top of paying the ₦200,000 itself.
Common mistakes
- Assuming a late remittance is a minor administrative slip. The penalty is a percentage of the amount involved, charged every year it stays outstanding.
- Not deducting at all because a supplier objects. The penalty for a missed deduction is steeper than the one for a late remittance.
- Forgetting that a conviction is possible. The administrative penalty is not the only consequence the law provides for.
For the rates to deduct in the first place, see WHT rates on contracts, services and goods. For the exemption that removes some small transactions from this risk entirely, read the WHT exemption for small businesses, and browse the NRS and Rev360 hub for more.