Withholding tax simply put is a tax which is deducted from payments due to suppliers that do not possess a valid tax clearance by the payer for remission of the deducted funds to Zimra. This tax was enacted in terms of section 80 of the Income Tax Act [ chapter 23:06] and its basic purpose is to ensure payment of tax by all business persons.
Until this current year the withholding tax rate was 10% and applied to all amount above the threshold set by the Minister of Finance through the Finance Act. For the current year the withholding amount was increased from 10% to 30% in a move which is seen as a measure aimed at increasing tax compliance by all business persons in the country. The threshold for amount for which withholding tax has been levied currently stands at ZWL130 000.00 or USD1000.00.
While, it can have imagined that the increased rate of withholding tax has caused alarm among the uncompliant as they risk to lose more of their proceeds, it would be important to note the amounts are not lost to the tax payer as the Commissioner withholds the amounts deducted until an assessment of the tax payers' liability is made. In simple terms all a person who has had withholding tax deducted is allowed within the year of assessment to once having had their income tax liability assessed claim the sum deducted as a tax credit.
The next important issue is when the payer who has deducted withholding tax from a payee is expected to remit the amount withheld to Zimra and what the reporting requirement is structured. In this regard, Zimra requires the withheld funds to be paid over to them by the 10th of the month following the month in which the amounts/ payment were withheld and failure to do attracts penalties by Zimra.
Like any tax head there are always exemptions to the rule and withholding tax is no different as under the following instances it would not apply; -
I. Amount paid as an agreement for the settlement of a delictual claim against the State or a statutory corporation
II. Amount paid in terms of an employment contract
II. Amount on a sale effected in any shop in the ordinary course of the business of such shop or any other consumer contract for the sale or supply of goods or services or both in which the seller or supplier is dealing in the course of business and the purchaser is the final user or consumer.
Businesses are encouraged to always ensure their tax affairs are in a satisfactory state to avoid having deductions made on their invoices which could lead to massive loses on their end. While it would be possible to obtain tax credits the effects of the constrained cash flow may never be recovered from by business.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.