Taxing trade incentives in Nigeria – a conundrum!

The Federal Inland Revenue Service (FIRS), on 14 August 2019, issued a public notice informing companies, particularly those in the FMCG sector, of their ‘obligation’ to deduct withholding tax (WHT) and VAT on compensation paid to distribution intermediaries, irrespective of the description (commission, rebate, etc.) or the form of settlement (cash, credit note, goods-in-trade).

FIRS purportedly based its position on the provisions of the Companies Income Tax (CIT) (rates, etc. of tax deducted at source [withholding tax]) Regulations (the Regulations) and Paragraph 3.8 of FIRS Information Circular No. 2006/02 (the Circular).

Considering the far-reaching effect of this public notice on the industry players, it becomes important to analyze the veracity of FIRS’ claim on the applicability of WHT and VAT on all forms of trade incentives

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