Withholding TAX
What is Withholding Tax?
Withholding tax is an advance payment of income tax that is deducted from certain 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.
Although Withholding tax is not a system of taxation, it is a method of collecting income tax using a debtor as a tax collector.
Therefore, the tax withheld or retained is the recipient’s tax and must be remitted to MRA.
Who is required to register for Withholding Tax?
Any person or any establishment that makes payments to any person is required 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 |
| Royalities | 20% |
| Rent | 20% |
| Payment for Any Supply to Traders and Institutions (Foodstuff) | 3% |
| Payment for Any Supply to Traders and Institutions (Other) | 3% |
| Commission | 20% |
| Payment for Carriage and Haulage | 10% |
| Payment for Tabacco and Other Farm Products | 0% |
| Payment to Contractors in the Building Industry | 4% |
| Payment for Public Entertainment | 20% |
| Payment for Causal Labour (Up to 15,000) | 0% |
| Payment for Casual Labour (Over 15,000) | 20% |
| Payment for Services | 20% |
| Interest | 20% |
| Fees | 20% |
For example, if you engage a transporter to deliver goods to your maize-producing company at a cost of K500,000.
He/she will be paid 10% less this amount i.e.:
- Total cost = K500,000
- WHT rate for carriage and haulage = 10%
- WHT amount = 10% x K500,000 = K50,000
- Amount due to transporter = K450,000
After this, you should prepare a Withholding Tax Certificate in triplicate and must:
- Issue the person from whose payment is deducted with copy B of the certificate (WHTF1).
- Remit the tax to MRA within 14 days from the end of the month during which the deduction was made together with the original copy A and WHTF2 as a summary.
- Retain copy C for record purposes.
Penalties
If you fail to deduct Withholding Tax, you 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.
