Title page

Certification i

Dedication ii

Acknowledgement iii

Table of Content v



1.1 Background of the Study 1

1.2 Statement of Research 5

1.3 Objective of Study 6

1.4 Justification of Study 7

1.5 Hypothesis of Study 8

1.6 Scope and Limitation of Study 9

1.7 Plan of the Study 10



2.1 Definition and Objective of Taxation in Nigeria 13

2.1.2 Classification of the System in Nigeria 15

2.1.3 Canons of Taxation 16

2.2 Nature and Objective of Withholding Tax System 

in Nigeria 18

2.3 Income to Which Withholding Tax in Applied 

and Tax Applicable 22

2.4 Duties of Parties involves in Withholding Tax 24

2.5 Administration and Implementation withholding 

Tax in Nigeria 31

2.6 Determination of Relevant Tax Authority 37

2.6.1 Withholding tax return and income exempted 

from tax 38

2.6.2 Offence and Penalties 40

2.7 Advantages of Withholding Tax System 41

2.7.1 Contentious Issue on Withholding Tax 42

2.7.2 Distinction between Withholding Tax and VAT 44



3.1 Research Methodology 47

3.2 Research Design 47

3.3 Types and Method of Data Collection 47

3.4 Method of Sampling 48

3.5 Population and Sample Size 49

3.6 Method of Data Analysis 49

3.7 Statistical Techniques used in Data Analysis 51



4.1 Introduction 52

4.2 Data Analysis and Interpretation 53



5.1 Summary 73

5.2 Conclusion 74

5.3 Recommendation 76

5.4 Limitation of the Study 79

Reference 80



The responsibilities of government toward its citizen include provision of infrastructure facilities security important welfare development project, to improve the standard of loving to promote economic development etc. It is quite obvious that such activities will only be possibly carried out through the support from an efficient and effective financial base.

The financial base can be gotten from various sources including “Taxation”.

Taxation can simple be define as the concept and science of imposing tax as the citizen (Sun Ni 2009). Tax in the other hand is a compulsory levy imposed by the government through its agents and for which it is not bound to offer service or consideration (Ola 2006).

Tax is levied on income (individual) profit (enterprise and companies). Capital (capita gain tax) and consumption (tariff) of a subject (citizen). Basically, taxes are classified into direct and indirect taxes. This classification is based on how the taxes are paid.

Direct taxes are levied on individual or institution examples of direct taxes in Nigeria are personal income tax (including PAYE) company income tax, capital gain tax, withholding tax.

Indirect taxes are levied on manufacturers or wholesalers and importance of goods is passed on to the ultimate consumers in the form of price increased. Indirect taxes include customs duty, exercise duty, stamp duty, vat etc. (Ola 2006).

There are many types of tax system in Nigeria, which include personal income tax, company income tax, capital gain tax, vat, withholding tax systematic.

This study intends to examine the tax system known as withholding tax system as well as its relevant and adequacy. Withholding tax is an advance payment of income tax. It is deductive at the point of neither payment nor when credit is taken, whichever comes earlier for the specified activities. Any cooperation or incorporated body who is a recipient of the payment or the credit for the specified activities or services is therefore liable to suffer tax (Ola 2006).

Withholding tax can also be tax collection device that can be built into any type of tax. It is a system in which a debtor is empowered by law to withhold a certain percentage of the money due to his creditor and pay it over to the government in lies of the tax to be paid lat and on that sum by the creditor. It is deductible as source (Ishola 2010).

The withholding tax system was introduced by section 9 (21c) of degree 98 of 1979 and section 4 (5) of decree 80 of 1977. The purpose is to bring the prospective taxes payer to the tax notices. There by widening the income tax base. In other words, withholding tax system is used to track down tax payers and the income which may otherwise not be reported by them.

Withholding tax is among other things nothing more than a collection, machinery to curb tax evasion.

It is not a separate tax on its own suffices is to say that it is a payment on account of income tax and is available as set off against tax assessment of relevant periods. It is common knowledge that the percentage of voluntary compliance with the law on taxation matters by the citizen and indeed corporate bodies is very negligible and the need for government to generate as which revenue as possible is imperative.

This justified the need for the law on withholding tax system.


Before the introduction of withholding tax system, the government realized with great concerned the increase in incidence of tax evasion among recipients particularly landlords and shareholders.

Similarly, the ineffective manner of deducting tax from board of directors’ members of the companies especially those who hold multiple O. chains directorship was equally of great concern to the government.

This study provides answer to the following questions:

⦁ Has the implementation and administration of tax fully understood by the practitioners?

⦁ Does the system (withholding tax) bring effectiveness in deducting from the recipient?

⦁ Has withholding tax system brought any good to Nigerian economic?

⦁ Can anything be done to improve its adequate and relevance in Nigeria tax system?

⦁ Is there any punitive measure for the tax evader put up by the government?


This study will examine the relevance and adequacy of the withholding tax system in Nigeria with the aim correcting uniformed impression about its implementation.

The need to understand the withholding tax operation in Nigeria cannot be over emphasized the study will include the need for effective and efficient financial base for the government as imperative. The study will also look into how withholding tax is efficiently managed in order to generate adequate revenue from the source. Other specific objective includes.

Explain to taxpayers, the public and other interested parties on how the withholding tax operates.

⦁ Give other important aspect in the implementation and administration of the system.

⦁ Attempt to evaluate the adequate of the system in line with its stated objectives.


The study should the immense benefit to the tax payers, public and corporate organization that suffer the tax. The more they were informed the more livelihood of understanding and appreciation of the usefulness of the system and more importantly the less they lively to evade tax.

The study served as a mechanism or tool for investment decision-making process for the investors. Finally, the study is set to reawaken government to their responsibility by making necessary amendments and additional provision to the withholding tax law in Nigeria.


A test of hypothesis is a rule that specifies for each possible setoff observation what to accept or reject the null hypothesis i.e. HO and HI (Alternative Hypothesis).

In line with the above statement the hypothesis that will be tested is HO: - The withholding tax system has no significant impact on the economic development in Nigeria.

HI: - The withholding tax system has significant impact on the economic development in Nigeria.

HO: - There is significan6t relationship between the incidence of tax evasion development and introduction of withholding tax in Nigeria.

HI: - There is significant relationship between the incidence of tax evasion and introduction of withholding tax in Nigeria.


The scope of the study will be restricted to the federal Inland Revenue service Ilorin. The emphasis will be placed on the impact of the bard of Inland Revenue on the Nigeria tax system. This study will make revenue to the provision of various tax laws, which Confer the Federal Inland Revenue Service the authority to withhold tax and withholding tax account. Without any doubt there are limitations to this study. Due to starter time frame. This study is restricted to Federal Inland Revenue Service, Ilorin. Another Constraint is Finance couple with accessibility to some information and Material.


The study will be divided into five chapters, 

Chapter One contains, Introduction, this will give the general background of the research work, statement of the problem, Jurisdiction of the study, Objective of the study ,, research question, hypothesis of the study, scope of the study.

Chapter Two contains, the literature review; reviewing of related works of different authors, research in related field, journal e.t.c

Chapter three deals with Research methodology, this will include method data collection, population of the study sample and sample size and method of data analysis.

Chapter four contains data analysis of presentation, this will deals with data presentation, analysis and interpretation.

Chapter Five contains the summary, the research work, draw conclusion and make recommendation


WITHOLDING TAX SYSTEM: It is a method of collecting tax at source from a certain source of income (such as Individuals, rent, interest, royalty, director’s e.t.c.)

I. INDIVIDUAL: are under the tax jurisdiction of the state tax authority where individuals resides except individual like non-resident, resident of Abuja (FCT) member of the Police and Armed Forced and external affairs officers who are under the Jurisdiction of the Federal Inland Revenue Service (FIRS)

II. RENT: As from 1994 year of assessment to date the rate of tax on rent is 10% both on companies and individuals.

III. INTEREST: On bank pass-book saving account with balance less than N50, 000 is exempted.

IV. ROYALTY: where a payment such as interest or royalty is due or payable to a person, the payer shall at the date which the payment is made or credited whatever first occurs, deduct tax there from at the rate of 10% of the gross interest and 15% of the gross royalty (year 2005) and pay over the amount deducted to the tax authority.

V. DIRECTORS FEES: Section of the PITD 1993as amended stated that, where any payment of directors fees become due or payable to a person, the payer at the date when the payment is made or credited, which ever first occurs, shall deduct from tax at the rate of 10% (year 2005)




Taxation means compulsory transfer or payment of money from private individual and companies to the government after a percentage of their annual income primarily with the aim of arising revenue and secondly with the aim of directing the factors of production towards the government objective for that period (Oyeniyi 2006).

Tax is a compulsory levy imposed by the government through its agents and for which it is not bound to offer service or consideration (Oba 2006).

These are the reasons why taxes are changed by the governments.

1. To complement government re-current expenditure through the provision of social amenities.

2. To control economic activities in the way of preventing inflation of deflation.

3. To control the production and consumption of certain goods and services.

4. To help in re-distribution of wealth among low, medium and high income earns.

5.    To serve as a major policy tool used for economic reform.

6. To encourage and protect in fact industries in the country.

7. To ensur4e that the balance of payment of the country is in a healthy position.



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