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 institutions (I) Food stuff (II) Other supplies other than food stuff
|
3% 3% |
(d) Commission |
20% |
(e) Payment for carriage and haulage |
10% |
(f) Payment for tobacco and other farm products (iii) Sale of farm produce |
1% final tax |
(g) Payment to contractors in the building industry |
10% |
(h) Payment for public entertainment |
20% |
(i) Payment for casual labour: (i) Payment of up to K35,000.00 (ii) Payment in excess of K35,000.00 |
0% 20% |
(j) Payment of services |
20% |
(k) Interest |
20% |
(l) Fees |
20% |
(m) Winnings
Lottery
Betting
|
5% final tax
0% 5% final tax
|
Withholding tax does not apply on the following;
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 supply, the operator should:
The advantages are:
(a) To Taxpayers
(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
(b) To Government
(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, plus interest at the rate of bank lending rate plus 5%.