The Federal Inland Revenue Service (or ‘The Service’) in its Public Notice (PN) of August 14, 2019 directed all companies, particularly those in the Fast-Moving Consumer Goods (FMCGs) Sector to deduct at source, Withholding Tax (WHT) and Value Added Tax (VAT) from compensations due to their distributors and customers.

These compensations referred to by the Service are marketing schemes and business promotion strategies deployed by companies to penetrate the market, promote their brands, build customer loyalty and ultimately grow revenue. As rightly noted by the Service in the Public Notice, these compensations are awarded to agents, dealers, distributors, retailers and can be in the form of cash payment, credit notes or even goods-in-trade. The critical points of this issue include:

  1. The complications involved in subjecting certain class of compensations to tax
  2. The additional responsibility imposed on companies (FMCG) to deduct and remit VAT and WHT on compensations.

More importantly is that, the Public Notice issued by the FIRS is in sharp contrast to the provisions in the tax law.


The 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). The Public Notice has ended up confusing the taxpayers in an attempt to ensuring compliance with the already existing regulations.

In clear terms, the Public Notice implies that if FMCG X raises a tax invoice to retailer Y with a contract amount of N100,000 and discount of N10,000. FIRS require that FMCG X upon receipt of N90,000 (contract amount less discount) from Retailer Y, remit 7.5% of the entire N100,000 as VAT and not on the actual N90,000 bank flow. Similarly, FMCG X is expected to remit WHT on the N10,000 discount given as compensation to Retailer Y. This implies that VAT will be applied on both the contract and the discount/rebate while WHT will be applied on the discount only.

While this does not portray the position of the tax laws and appears to be misleading, it is pertinent for us to AIDE you. To this end, we have juxtaposed the Public Notice with the relevant tax laws. Thus, aligning it to professional thoughts.

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