Withholding Tax is an advance payment of income tax that is deducted from specified payments. A person making the payment deducts the tax.
Any individual, partnership, trust, association, company, club, statutory body, council, government ministry or department or any religious organisation, 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 |
DEDUCTION RATE OF WITHHOLDING TAX ON GROSS PAYMENT |
(a) Royalties |
20% |
(b) Rent |
20% |
(c) Payment for any supply to traders and institution (i) Food stuff (ii) Other |
3% 3% |
(c) Commission |
20% |
(d) Payment for carriage and haulage |
10% |
(e) Payment for tobacco and other farm products (i) Sale for the first 1, 200kgs or ten bales of tobacco sold through Auction Floors (ii) Sale of tobacco in excess of 1, 200kg or ten bales sold through Auction Floors (iii) Sale of tobacco through Farmer Clubs at Auction Floors |
0% 3% 0% |
(f) Payment to contractors in the building industry |
4% |
(g) Payment for public entertainment |
20% |
(h) Payment for casual labour (i)Payment of up to 15,000.00 (ii) Payment in excess of 15,000.00 |
0% 20% |
(h)Payment for services |
20% |
(i) Interest |
20% |
(j) Fees |
20% |
For example:
If a transporter is engaged to deliver goods to a maize producing company at a cost of K500, 000.00, he or she will be paid 10% less this amount i.e:
Total cost = K500, 000.00
WHT rate for carriage and haulage = 10%
WHT amount = 10% x K500, 000.00 = K50, 000.00
Amount due to transporter = K450, 000.00
After making the deductions, the operator should prepare a Withholding Tax Certificate in triplicate and must:
The advantages are:
(i) The taxpayer is relieved of the burden of squaring the liability at once because one pays tax little by little.
(ii) You pay tax when money is available.
(i) It accords the government a steady flow of revenue
(ii ) It brings people who have not registered for tax into the tax net.
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.
The Commissioner General may, on application, issue a Withholding tax exemption certificate, in the form set out in the Third Schedule to the regulation regarding Withholding tax to any person who has met all of the following conditions (other than a person who is tax exempt):
A Withholding Tax Exemption Certificate does not apply on payments for royalties, rent, fees, commissions, contractors and subcontractors and bank interest.
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.