Withholding Tax is an advance payment of income tax that is deducted from specified payments. A person making the payment deducts the tax.Who is liable to operate Withholding Tax?
Any individual, partnership, trust, association, company, club, statutory body, council, government ministry or department or any religious organization, as long as it makes payments to any person, is eligible to register with MRA and operate Withholding Tax. Withholding Tax is deducted using specified rates (14th Schedule to the Taxation Act) as follows:
|Nature of Payment ||Rate|
|3||Payment for any supplies to traders and institutions:|
|5||Payment of Carriage and Haulage ||10%|
|6||Payment of Contractors and Sub-Contractors ||4%|
|7||Payment for Public Entertainment ||20%|
|8||Payment of over K15,000 for Casual Labour ||20%|
|9||Payment of Services ||20%|
What are the advantages of Withholding Tax?
|10|| Bank Interests in Excess of K10,000||20%|
|12||Payment of Tobacco Sales||3%|
(a) To Taxpayers
The taxpayer is relieved of the burden of squaring-up the liability at once because one pays the due tax little by little
You pay tax when money is available
(b) To Government
It accords the Government a steady flow of revenue
It brings people who have not registered for tax into the tax netWhat is a Withholding Tax Exemption Certificate?
This is a certificate issued by MRA on application to exempt a taxpayer from being withheld tax on specified payments. Even though one would not be deducted tax at the time of the transaction, he/she would be required to file a return of income to MRA at the end of his/her accounting period.What are the conditions for obtaining a Withholding Tax Exemption Certificate?
The certificate will be issues to a taxpayer if he/she has:
Timely filed a return of income that is due
Filed returns of income for all the years since commencement of business
Paid all outstanding taxes due, including Valued Added Tax and Customs duties
Been audited for tax - if the Commissioner General so directs
Complied with any special or general directions, or has fulfilled any conditions, which the Commissioner General considers necessary to give or impose, having regard to the circumstances of the application Does a Withholding Tax Exemption Certificate apply on all specified goods and services?
A Withholding Tax Exemption Certificate does not apply on payments for royalties, rent, fees, commissions, contractors and subcontractors and bank interest.
Is WHT tax the final tax that one is required to pay to MRA in a year?
WHT is not the final tax but it is an installment of the tax one would be expected to pay at the end of the year. For example, if one’s net profit after assessment is K300, 000 but he/she had provisionally paid K250, 000 in form of WHT, he/she would be required to pay K50, 000 only because K250, 000 was already paid in form of Withholding tax.
What will happen to anybody who fails to deduct Withholding Tax when due?
Any person who fails to deduct Withholding Tax shall be personally liable to pay the amount of any Withholding Tax which was not deducted plus an additional penalty of 20% of the amount of Withholding Tax that was to be paid.