September 5, 2018
Further to the commencement of the ongoing review and reconciliation exercise on taxpayers’ Withholding Tax (WHT) credit balances by the Federal Inland Revenue Service (FIRS), some FIRS stations have now issued some guidelines on the utilization of WHT credit notes. The guidelines require taxpayers who wish to file tax returns and apply for Tax Clearance Certificates to submit to the FIRS, evidence of payment of all assessed taxes. The guidelines also highlight certain compliance requirements for the utilisation of WHT credits.
In respect of WHT credits utilisation, the guidelines are as follows:
- Letter of request to the relevant tax office to utilize the credits on FIRS’ web portal to offset the CIT liabilities;
- Police report (if missing) or/and sworn affidavit with passport photograph stating why the company could not access its original WHT credit notes;
- Letter of undertaking stating that the company will not utilize the said WHT credits in future; and
- Contract award letters relating to the WHT credits.
Although the additional guidelines provided by the FIRS on the utilisation of WHT credits by taxpayers are not contained in either the CIT Act or the WHT Regulations, the FIRS (Establishment) Act grants an omnibus power to the FIRS to carry out any activity that it deems necessary for the full discharge of its functions. However, it is expected that the FIRS would exercise its discretionary power in a reasonable manner. For instance, requesting documents such as contract award letters before validating WHT credits that were originally granted by the FIRS appears to be an unnecessary and cumbersome process.
Furthermore, the requirement for manual notifications and provision of supports such as police reports and/or sworn affidavits in the case of missing WHT credit notes may not have been necessary, if the FIRS had real-time database of taxpayers’ WHT records as it now intends to do after completing the ongoing process.
Nonetheless, the on-going review and reconciliation exercise of taxpayers’ WHT credit positions is a good opportunity for taxpayers to reconcile their records with the FIRS and it is advisable that those with unutilised WHT credits take full advantage of the exercise.