In Nigeria, one of the most common challenges independent contractors and freelancers face is understanding how taxes work — particularly Withholding Tax (WHT) and Personal Income Tax (PIT). Whether you offer professional services, handle short-term projects, or work remotely with clients across states, knowing your tax obligations is key to staying compliant and protecting your business reputation.
At Alphajane Solutions, we train and support businesses, entrepreneurs, and contractors to understand and manage their tax responsibilities easily. This article will help you make sense of WHT and PIT, and how to handle them correctly across different states.
Key Reform Updates:
Under the recent Finance Acts (2019–2024), major reforms have been introduced to make the tax system fairer and encourage voluntary compliance:
- Individuals earning ₦800,000 or less annually are now exempt from PIT.
- Tax reliefs have been increased for low-income earners through consolidated allowances and deductions.
- The maximum PIT rate is now 25%, replacing the former 24%, for high-income earners above ₦50 million annually.
Understanding Withholding Tax in Nigeria for Independent Contractors
Withholding Tax is an advance payment of income tax. It is deducted at the source whenever you are paid for services such as contracts, consultancy, commissions, or rent.
- Who withholds it? The company or client paying you deducts the tax before payment.
- Why it matters: WHT is not a separate tax; it’s an advance credit against your Personal Income Tax (PIT) if you’re an individual, or Company Income Tax (CIT) if you operate a registered business.
- Who remits it? The payer must remit the deducted WHT to the relevant tax authority — the Federal Inland Revenue Service (FIRS) for companies or the State Internal Revenue Service (SIRS) for individuals.
The purpose of WHT is to encourage early tax collection and prevent evasion, ensuring steady government revenue.
Understanding Personal Income Tax (PIT)
PIT is the tax charged on an individual’s income — including salaries, business profits, and freelance earnings. Every individual working or residing in Nigeria is required to pay it to the Internal Revenue Service (IRS) of their state of residence.
Why it’s important:
- Proof of PIT payment (Tax Clearance Certificate) is required for business registration, visa applications, government contracts, and loan processing.
- WHT deducted from your payments counts as a credit toward your PIT — meaning you won’t pay tax twice.
PIT Rate Structure
| Annual Taxable Income (₦) | Tax Rate / Formula |
| 0 – 800,000 | 0% (Exempt) |
| 800,001 – 3,000,000 | 15% on amount above ₦800,000 |
| 3,000,001 – 12,000,000 | ₦330,000 + 18% on income above ₦3,000,000 |
| 12,000,001 – 25,000,000 | ₦1,950,000 + 21% on income above ₦12,000,000 |
| 25,000,001 – 50,000,000 | ₦4,680,000 + 23% on income above ₦25,000,000 |
| Above 50,000,000 | ₦10,430,000 + 25% on income above ₦50,000,000 |
Example:
If you earn ₦5,500,000 in a year:
- ₦800,000 → 0% = ₦0
- Next ₦2,200,000 → 15% = ₦330,000
- Remaining ₦2,500,000 → 18% = ₦450,000
✅ Total PIT = ₦780,000
Note : Taxable Income=Gross Income−AllResponsibilities of Independent Contractors
To stay compliant, you must:
- Register with your State Internal Revenue Service (IRS).
- Obtain a Tax Identification Number (TIN).
- Declare your annual income.
- Pay your PIT via bank or online tax portals.
- Keep your receipts and request a Tax Clearance Certificate (TCC) annually.
- Submit your proof of payment to your client for record purposes.
Non-Compliance Penalties (Under the Tax Reform):
- Late filing attracts a fine of ₦50,000 for individuals.
- Failure to remit WHT or PIT may lead to additional interest, penalties, or restriction from obtaining TCCs.
Benefits of Tax Compliance
- Strengthens your professional credibility.
- Gives access to government contracts and funding opportunities.
- Enables smoother visa and loan applications.
- Prevents penalties and legal issues.
Contributes to national growth and transparency.
Read our guide on Understanding Taxation here
