Withholding tax is an advance payment of income tax that is deducted at source from specified payments. It applies to a system under which a person due to make a payment to another person is under the obligation to retain or withhold part of that payment for tax purposes.
Withholding tax is not a system of taxation but it is a method of collecting income tax using a debtor as a tax collector. Therefore, the tax withheld or retained is the tax of the recipient and it must be remitted to MRA.
Withholding tax is advantageous in a number of ways. The taxpayer is able to settle his income tax liability in instalments thereby being relieved of the burden of settling the entire tax liability at once at the end of the year.
Tax is paid while money is still available since the deduction occurs on payment.
Withholding tax also accords the government a steady flow of revenue. Furthermore, it brings people who have not registered for tax into the tax net.
Any taxable person, that is, any individual, partnership, trust, association, company, club or statutory body, is eligible to operate Withholding Tax for all specified payments using specified rates as provided for in the 14th Schedule to the Taxation Act.
Once the person making the payment has deducted Withholding Tax, he should do the following: prepare a withholding tax certificate in triplicate; issue the person from whose payment withholding tax has been deducted with copy B; and remit the tax within 14 days from the end of the month in which the deduction is made together with copy A and form WTF 2 which provides a summary of the withholding tax payments in a particular month.
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