Federal and State Tax Remittance in Nigeria: How to Get It Right and Stay Out of Trouble

Salary day comes around, deductions leave the payroll account, and then somebody has to move that money to the right tax authority before a deadline that most people only remember when the penalty letter arrives. That is the reality of tax remittance in Nigeria. It is not complicated in theory, but the details are unforgiving.

This guide walks through how remittance actually works at both federal and state level, the calculation cases that quietly cause underpayment, and the practical habits that keep penalties away.

Who Collects What

Nigeria runs a two-tier system, and getting the split wrong is one of the most expensive mistakes a business can make.

The Federal Inland Revenue Service (FIRS) handles Companies Income Tax, Value Added Tax, Withholding Tax on transactions involving companies, Tertiary Education Tax, and the various levies attached to company profits. State Internal Revenue Services handle Personal Income Tax, which includes PAYE deducted from employees' salaries. In the Federal Capital Territory, the FCT Internal Revenue Service plays that role.

The catch is simple. Paying the correct amount to the wrong authority does not count as payment. You will still owe the right one, and you may have already lost the money you sent elsewhere while you sort out a refund. Confirm which authority is entitled to a particular deduction before you transfer anything.

The Mechanics of Remittance

PAYE

PAYE is deducted at source from employees' salaries and remitted monthly. In most states the deadline is the 10th of the following month, though you should confirm the exact date with your state revenue service because a few differ.

It is not just a payment. You also file a schedule listing each employee's name, Tax Identification Number, gross pay, allowances, reliefs, and the tax deducted. A payment without a schedule is an incomplete filing, and many states treat it that way.

Remittance channels are mostly online now. Lagos uses eTax, the FCT has its own portal, and federal taxes go through FIRS TaxPro Max. If you have been paying over the counter, moving online will save you a lot of time and give you cleaner records.

VAT

VAT is charged at 7.5 percent on taxable supplies. The business collects output VAT from customers, offsets input VAT paid on eligible purchases, and remits the difference by the 21st of the following month.

Filing is monthly, and a nil return is still a return. If you had no taxable transactions in a month, file nil. Skipping the filing because there was nothing to pay is a common and entirely avoidable penalty.

Withholding Tax

WHT is deducted at source when you pay for qualifying transactions such as professional services, rent, construction, and commissions. The rates vary by transaction type and by whether the recipient is a company or an individual, so it is worth keeping a current rate table close by.

Companies remit WHT by the 21st of the following month. For deductions made from payments to individuals, the deadline is typically the 30th. After remitting, you must issue a withholding tax credit note to the supplier, because that note is what allows them to offset the tax against their own liability.

Withholding tax is also one of the most commonly mishandled deductions. Two errors show up constantly: computing WHT on the invoice total including VAT, and forgetting to remit at all because the vendor said they would "handle it." The deduction is your responsibility, not theirs.

Calculation Edge Cases That Catch People Out

This is where remittance goes wrong even when the business is trying to do the right thing.

Benefits in Kind and Allowances

Housing allowances, company cars, fuel, driver's salaries, and other benefits form part of taxable income. A payroll that taxes only basic salary will under deduct, and the shortfall lands on the employer. Go through every allowance on the payroll and decide, in writing, whether it is taxable.

Mid-Month Hires and Exits

When someone joins on the 14th or leaves on the 20th, their income for the year is partial. Annualising that partial figure to apply the tax bands can push a low earner into a higher bracket and produce an obviously wrong result. Pro-rate carefully, and reconcile at year end when the full picture is available.

Bonuses and Arrears

A bonus paid in December is taxed in the month it is paid, and it can push the employee into a higher band for that month alone. Some states allow spreading or relief in specific circumstances. Check your state's practice before you assume either approach.

Low Income and Minimum Wage Earners

Recent reforms exempted earners at or below the national minimum wage from PAYE. If your payroll still deducts from workers in that bracket, you are creating a refund problem for yourself later.

Where the Employee Lives

PAYE belongs to the state where the employee resides, not necessarily where the office is. With remote work now common, a Lagos registered company with staff living in Ogun or Oyo has remittance obligations in those states too. This is easy to miss and easy for a state auditor to find.

Gross Versus Net on WHT

WHT is computed on the invoice value excluding VAT. Deducting on the VAT inclusive figure shortchanges the supplier, who cannot claim a credit for tax that was never due. It also creates a mismatch when they try to reconcile their own records.

Penalties You Really Want to Avoid

Late remittance and late filing attract penalties and interest at both levels of government, and the amounts are not trivial.

At the federal level, failure to remit withholding tax attracts a percentage penalty on the amount withheld plus interest at the prevailing monetary policy rate. VAT late filing carries a fixed penalty for the first month and a daily penalty afterwards. On the state side, most revenue services apply a percentage of the unremitted tax plus interest, though the exact figures differ from state to state. Lagos, for instance, is known for being strict and for following up actively.

There is a second penalty that people forget. If you deducted WHT but never remitted it, your supplier cannot claim the credit, and they will come back to you for the money. You end up paying twice.

Deducting tax and holding onto it is not a short term loan. It is a liability with a clock attached, and directors can be pursued personally in serious cases.

A Simple Routine That Keeps You Safe

• Build a tax calendar. PAYE by the 10th, VAT and WHT by the 21st, individual WHT by the 30th. Set reminders a week early, not on the day.
• Reconcile before you pay. Match the payroll register against the remittance schedule. Nine times out of ten, mismatches come from a late adjustment nobody told finance about.
• Separate the money. Move deductions into a dedicated tax account as soon as payroll runs. It removes the temptation to spend what is not yours.
• Keep the evidence. Receipts, filed schedules, acknowledgement slips, and WHT credit notes. If an audit comes two years later, this is what saves you.
• File nil returns. Never skip a filing because there is nothing to pay.
• Review quarterly. Look at headcount changes, remote staff locations, and new supplier categories. Most remittance errors start with a change nobody flagged.

If your payroll has grown past a handful of people, or you operate across more than one state, bringing in a tax adviser is usually cheaper than the penalties. It also helps to understand how voluntary disclosure programmes work, since several states have used them to let businesses regularise old gaps without the full penalty load.

For a closer look at how the different deduction types interact on a single invoice, see our breakdown of how VAT and WHT are applied together on a typical Nigerian service invoice.

Final Thoughts

Tax remittance in Nigeria rewards routine more than cleverness. Get the authority right, get the base right, file on time, and keep the paperwork. None of that is glamorous, but it is the difference between a quiet year and one spent arguing with a revenue officer.

One last thing worth saying plainly. Rates, thresholds, and deadlines do change, sometimes quickly. Treat this as a map rather than a legal document, and confirm anything critical with FIRS, your state revenue service, or a qualified tax practitioner before you rely on it.