Nigeria's 2% withholding tax and goods you make
Whether a Nigerian customer should deduct 2% withholding tax from a manufacturer's invoice for its own goods, and what to do if it deducts anyway.
By Achekam · · 5 min read · For Manufacturing businesses in Nigeria
A Nigerian manufacturer invoices a distributor for a truckload of its own products, and the payment arrives short. The remittance says "less WHT". The distributor's accounts officer has a rule: deduct withholding tax on every supplier payment. Your accounts team has a different view: you made these goods, so the deduction should not apply. Meanwhile the invoice sits part-paid and the difference is real money on every load.
The question comes up constantly because Nigeria's withholding tax on goods is narrower than many payers assume. This article explains who the 2% applies to, why it generally does not touch a manufacturer's sales of its own goods, what to do when a customer deducts it anyway, and how to handle the short payment in Achekam.
Who the 2% applies to
Nigerian withholding tax is 10% on dividends, interest and rent, and 2% on payments to resident suppliers of goods who are not the manufacturer. That last condition is the one that matters here. Read plainly, the 2% on goods describes businesses supplying goods someone else made, not the business that made them.
The tax is administered by the Nigeria Revenue Service, the rebranded Federal Inland Revenue Service, so older guidance and many customers' internal procedures still refer to FIRS. The NRS's own page on withholding tax sets out who must deduct tax at source, what the withholding return must show for each payee, which transactions are exempt from deduction, and the consequences of failing to deduct or remit. It is the page to send a customer's accounts officer to.
The stakes are real for payers. Withholding tax not remitted to the NRS by the 21st of the following month attracts 10% a year plus interest, and failing to deduct it at all attracts a 40% penalty. That is why accounts officers deduct by default: from their side, deducting when it was not required feels safer than failing to deduct when it was.
Manufacturers selling their own goods
If you manufacture the goods you are invoicing, the 2% for suppliers of goods who are not the manufacturer does not describe your sale. Your job is to make that obvious to the customer before the first payment, not to argue about it after.
Practical steps:
- Say so on your documents. Show your registered name as manufacturer, your factory address and your Tax ID on invoices. Since 1 January 2026, Nigeria issues a 13-digit Tax ID that replaces earlier TINs, and every taxable person must show it on returns and transaction documents.
- Send a short letter at account opening. State that the goods supplied are manufactured by you, with your CAC registration and Tax ID, and ask the customer to note it on your supplier record.
- Separate other supplies. If you also resell goods you did not make, or provide services such as installation, invoice them on separate lines. The treatment of those lines may differ, and mixing them invites a blanket deduction.
Have your tax adviser confirm the position for your own product range, particularly if you assemble or finish goods made by others, before you send the letter.
When a customer deducts anyway
Some customers will deduct regardless. When that happens:
- Ask before accepting the short payment as final. Send the letter and the NRS page, and ask the customer to pay the balance.
- If the customer will not refund, ask for evidence. Request proof that the amount deducted was remitted to the NRS in your name, with your Tax ID. Without it, you may have neither the money nor any credit for it.
- Keep a register. For each customer, list the invoice, the amount deducted, the date, and whether evidence has been received.
- Escalate patterns. A customer who deducts on every invoice despite your letter is a commercial conversation for a manager, not a matter for the accounts clerk each month.
Recording a short payment
In Achekam, a customer payment can be recorded against one invoice or spread across a customer's invoices, and a part payment leaves the invoice part-paid. Any extra is held on the customer's account.
The limit to know is that when a customer pays net of withholding tax, the receipt screens cannot settle the withheld part of the invoice. So after you record what the customer actually paid, the deducted amount remains open on the invoice and in your receivables. That is not wrong; it is a true picture of a balance you have not been paid in cash.
Use it. The open balance keeps the deduction visible until it is resolved, either by the customer paying the balance or by evidence that the tax was remitted in your name. When you have the evidence, ask your accountant how to clear the open amount, and file the evidence with the invoice. The same limit and the professional-fees version of this problem are discussed in when clients pay net of withholding tax.
A short-paid invoice, in words
A distributor pays a manufacturer's invoice less 2%. The accounts clerk records the receipt for the amount actually received, leaving the deducted amount open, and sends the distributor the manufacturer's letter and a link to the NRS page. The distributor agrees the goods were the manufacturer's own and pays the balance with its next payment. The clerk allocates it to the open amount, and the distributor updates its supplier record so the deduction stops.
Getting credit for tax withheld
Where a deduction was made and properly remitted, the evidence you receive is what lets your accountant deal with it in your own tax affairs. Collect it monthly, not at year end, because chasing a customer for evidence of deductions from many months ago rarely succeeds. Reconcile the register to the open balances in receivables at every month end, and hand the full file to your accountant before your return is prepared. Collecting the naira you are owed in the first place is covered in collecting naira payments.
A next step
Write the manufacturer letter, put your Tax ID and manufacturer status on your invoices, and list every customer who deducted in the last quarter. Send each one the letter and ask for either the balance or the evidence.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
