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A consultancy in Lagos invoices a client for ₦4,000,000 and ₦3,800,000 arrives. An architecture practice in Accra bills GHS 60,000 and is paid GHS 55,500. A training firm in Nairobi invoices KSh 800,000 and receives KSh 760,000. Nothing has gone wrong: the client has deducted tax at source and must pay it to the revenue authority on the firm’s behalf.
That money is not a fee the firm has lost. In all three markets it is an advance payment of the firm’s own income tax. But a credit is not something you can assert from your own records. It depends on a document — a receipt in Nigeria, a certificate in Ghana and Kenya — and in one of the three it only exists once your client has actually paid the money over. Hence the question partners ask when the statement is short: my client pays 95% of my invoice and I never get the certificate for the rest. The answer decides whether the deduction is a timing problem or a permanent cost.
What is happening?
Withholding tax on service fees is long-standing law in these markets, not a new measure. What changed is Nigeria’s architecture. Deduction at source now sits in section 51 of the Nigeria Tax Administration Act, 2025, which requires the payer to deduct “at the rate prescribed in regulations relating to deduction of tax at source” when payment is made or settled. That Act and the Nigeria Tax Act, 2025 were assented to on 26 June 2025 and gazetted in Official Gazette No. 117, Vol. 112, the Tax Act commencing on 1 January 2026. The rates still come from the Deduction of Tax at Source (Withholding) Regulations 2024, gazetted on 2 October 2024.
| Market | Resident service or professional fees | Non-resident | Remit by |
|---|---|---|---|
| Nigeria | 5% | 10% | 21st of the following month (federal) |
| Ghana | 7.5% | 20% | 15 days after the month ends |
| Kenya | 5% | 20% | 20th of the following month |
| South Africa | none | none | — |
Rates are drawn from PwC’s Worldwide Tax Summaries, the Kenya Revenue Authority’s Withholding Income Tax publication and Ghana Revenue Authority Practice Note DT/2016/001 of 6 October 2016. South Africa enacted a 15% charge on service fees and repealed it before it commenced; it had been due to start on 1 January 2017.
Thresholds matter at the small end. Kenya exempts local management and professional fees aggregating below KSh 24,000 a month. Ghana does not withhold on goods, works or services of GHS 2,000 or less, and treats two or more contracts in a financial year for the same service as one. Nigeria relieves a small company from the duty to deduct on transactions of ₦2,000,000 or less where the supplier has a valid tax identification number — relief for the payer, not for the firm being paid.
The decisive difference is what produces the credit. Nigeria’s Regulations make the customer, not the tax authority, responsible for issuing the receipt, which must show the supplier’s details, the gross amount, the amount deducted and the payment month; on presentation of that receipt the authority extends the credit irrespective of whether the customer has remitted. Ghana reaches the same place by statute: an agent must serve a certificate in the form prescribed by Regulation 26 of the Income Tax Regulations, 2016, and the recipient of a non-final withholding payment “is regarded as having paid the tax withheld”. Kenya does not work that way. The KRA states that “after successfully remitting the deducted amount to KRA, a Withholding Certificate shall be sent to the email registered on iTax by the taxpayer.”
Two things remain uncertain. We found no instrument stopping a client deducting from a Nigerian small company taxed at 0%, so the route there appears to be claiming the credit, not preventing the deduction. And our reading of the 2024 Regulations rests on a law firm’s clause-referenced analysis, the gazette itself being unavailable.
Why it matters economically
A deduction taken on gross fees but credited against tax on net profit is not a rate. It is a cash transfer whose size depends on your margin.
The crossover is arithmetic. In Nigeria, 5% of revenue equals 30% company tax on profit at a net margin of 16.7%; Kenya’s rates give the same figure. In Ghana, 7.5% against a 25% corporate rate gives 30%. Below those margins, a year’s withholding exceeds the company tax due on the year’s profit. This is our calculation, on taxable rather than accounting profit, and before other taxes the credit might be set against.
Take an illustrative Lagos engineering consultancy, assumptions stated: ₦108,000,000 invoiced in a year, all to clients who deduct, at a 12% net margin. Withholding is ₦5,400,000. Company tax on a taxable profit of ₦12,960,000 at 30% is ₦3,888,000. The firm has handed over ₦1,512,000 more than it owes. Under section 55 of the Administration Act a refund follows an audit, is payable within 90 days of the authority’s decision, and cannot be claimed more than six years after the year of assessment. The 90 days runs from the decision, not the claim.
So a firm whose staff are paid monthly is lending to a borrower it did not choose. And where the credit cannot be evidenced, the deduction stops being a timing difference and becomes margin: at a 12% margin, a 5% deduction never recovered removes more than two-fifths of the profit on that work.
What it means for African businesses
This is a professional services problem before it is anything else, because the sector’s cost base is salaries and its revenue is fees — there is no inventory cycle to absorb a cash gap. Ghana’s practice note is explicit that service fees cover the activities of physicians, lawyers, engineers, architects, surveyors, dentists, accountants and auditors.
It reaches further than fees. Construction and fit-out work is caught as “works” in Ghana, and contractual and agency payments carry 3% for residents in Kenya, so a real estate and construction business meets the same mechanism on progress claims. Kenya taxes training fees at 5%, which puts a training provider in the same position.
Two points are market-specific and should not be generalised. In Ghana, tax deducted on a payment to a partnership is allocated to the partners in proportion to their share of income and treated as advance tax paid by them, so the credit lands on partners’ returns rather than the firm’s. And a firm billing across a border is withheld at the non-resident rate — 10% in Nigeria, 20% in Kenya and Ghana — unless a treaty reduces it, so a practice serving the region from one hub can suffer four times the domestic deduction. Our note on how 32 African markets tax digital services covers the other tax on a cross-border invoice.
This is not the problem of money held in transit by a payment provider, the subject of Ghana’s notice on merchant collections: there the money is yours and the question is when it is released.
Technology and AI implications
Start with what technology cannot do. No system on your side makes a client issue a receipt, and in Kenya none can create a certificate at all, because it is generated only after your client remits. Software cannot close that gap; it can only tell you early that it is open. What it does well is make the deduction visible where it happens. Firms lose this money not through ignorance of tax law but because a withholding appears in the accounts as a short payment, and a short payment looks like a discount or a keying error. Unless the invoice record carries the expected deduction, nobody can tell which it was.
AI is largely beside the point here, and should be kept out of the deciding. These rules are deterministic — a rate, a threshold, a date — and a language model asked whether a fee is a “professional fee”, or which rate applies, will occasionally be wrong in a way that reads as authoritative. Its use is clerical: reading a scanned receipt into fields, with a person confirming the amount and the invoice it belongs to.
Practical business implications
- Record four things per invoice: gross invoiced, cash received, the deduction implied by the difference, and whether the document is in hand. Three of the four are usually already in the system, and never compared.
- Show the expected deduction on the invoice as information, not a charge. Nigeria’s Regulations state it is an advance payment of income tax and is not to be factored into the contract price.
- Chase on your market’s remittance date, not at year end. In Kenya, a certificate still missing weeks after the 20th of the following month says something about the client’s compliance.
- Check the receipt’s contents, not just its arrival: in Nigeria it is the document your credit rests on, and it must carry the tax identification number, the gross amount and the payment month.
- Price the float, not the tax: you cannot add the withholding to the fee, but you can set terms and milestones knowing a share of every invoice is deferred.
RevenueStack perspective
Our view is that firms treat this as a tax matter when it is a counterparty-risk matter. The withholding turns a slice of every fee into a receivable from the state whose recoverability depends on a document held by, or triggered by, your client. Firms price credit risk on the fee and nothing on the deduction, though the deduction is certain and the fee is not.
Two things follow that the standard advice misses. The break-even margin is a test a firm can apply to itself in an afternoon: below roughly 17% in Nigeria or Kenya, or 30% in Ghana, you are structurally in overpayment, so set-off planning matters more than the annual return. And the certificate chase is a client-quality signal: a client who deducts and does not remit is telling you about their cash position before their payment behaviour does.
The fix is small and specific, not an ERP programme: a handful of fields on the receivable record, one report that ages missing certificates by client, and the discipline of reconciling the implied deduction to the certificate rather than to the bank balance — the kind of thing a customer and billing system should do as a matter of course and rarely does out of the box. The firms that recover this money can name, today, which invoices are short and which documents are missing.
Conclusion
In Nigeria, Ghana and Kenya a professional firm is paid net of a tax it has not yet been assessed for. The law in all three treats that money as a credit against the firm’s own liability, and in Nigeria and Ghana it does so whether or not the client hands it over. But the credit is only as good as the document that proves it, and on a service firm’s margins a deduction that cannot be evidenced takes a disproportionate share of the profit. The deduction is unavoidable. Losing it is not.
Sources
- Nigeria Tax Administration Act, 2025 (Act No. 5 of 2025) — Federal Republic of Nigeria Official Gazette, 2025-06-26
- Nigeria Tax Act, 2025 (Act No. 7 of 2025) — Federal Republic of Nigeria Official Gazette, 2025-06-26
- An Overview of the Key Provisions of the Deduction of Tax at Source (Withholding) Regulations 2024 — Stren & Blan Partners, 2024-10
- Nigeria — Corporate: Withholding taxes — PwC Worldwide Tax Summaries, 2026-05-29
- Withholding Income Tax — Kenya Revenue Authority
- Practice Note on Withholding of Tax under the Income Tax Act, 2015 (Act 896) — DT/2016/001 — Ghana Revenue Authority, 2016-10-06
- Ghana — Corporate: Withholding taxes — PwC Worldwide Tax Summaries, 2026-10-27
- Ghana — Corporate: Taxes on corporate income — PwC Worldwide Tax Summaries, 2026-10-27
- South Africa — Corporate: Withholding taxes — PwC Worldwide Tax Summaries, 2026-05-29
- Withdrawal of withholding tax on service fees — Cliffe Dekker Hofmeyr, 2016-02-24