WITHHOLDING tax on local contracts is not one of the most celebrated measures in the country and that being the case, the law seems to not pay much attention to that either.
This is seen through the latest Bill that has reinforced the law on local contracts by including the word “over the year of assessment”.
This was omitted in the previous Finance Act.
Simply put, withholding tax is a tax levied and deducted from payments due to suppliers that have no tax clearance certificate by the payer for remission of the deducted funds to Zimra.
The objective of this particular law is to punish the offender, never the customer. This year brought a new revelation in terms of the rates in connection to this withholding tax ― we saw an increase from the previous 10-30 percent in a bid to increase tax compliance by all persons.
This is deducted on any payments (supplier), which has no tax clearance.
The amounts are not lost to the taxpayer as the commissioner withholds the amounts deducted until an assessment of tax payer’s liability is made.
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 how the reporting requirement is structured. In this regard, Zimra requires the withheld funds to be handed over to them by the 10th of the month, following the month in which the amounts/ payment were withheld and failure to do so attracts penalties from Zimra.
This is where most of the question marks and doubts start ― it would seem that this particular law is forwarding inefficiencies to the private sector.
Costs generally are being pushed over to the private sector. The call is that withholding tax must be deducted on payments for city council rates, Zesa bills, air tickets etc.
The unfortunate thing is that, if the customer, in most cases being the private sector, goes ahead to deduct the withholding tax, he/she will be delivering goods or services equal to the amount paid. In the case of air tickets for instance, one will not be awarded the pass to travel if the full price is not paid.
The effect is that customers will have to gross up. In other words, the customer must bear the brunt of the law and instead may end up paying the tax himself through grossing up just to ensure there is compliance, failure of which he will bear the penalty and interest for failing to deduct the tax.
In the end it is the private sector which must pay the tax on behalf of monopoly state enterprise. The question then is, why should the private sector fund the inefficient public sector?
In that regard, an appeal to the government would be to give the public performance contracts and ensure that it is made accountable or maybe opt to give exemptions to public goods or services such as Zesa, air tickets etc. The private sector should not suffer prejudice as a result of inefficiencies of the public sector.
Nonetheless, this tax head is no different from the others in terms of exemptions.
The exemptions are as follows; this would not apply to an amount paid as an agreement for the settlement of a delictual claim against the State or a statutory corporation, amount paid in terms of an employment contract and an 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.
Therefore, though the law has its flaws, it would be advisable for taxpayers to always find themselves on the right side of the law.
Business personnel are also 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 the withholding tax may be set off against income tax because of inflation, by the time the set-off is made this will amount to nothing especially when the withholding tax was deducted in ZWL$ and though it would be possible to obtain tax credits, the effects of the constrained cash flow may never be recovered from by business.
Tapera is the founder of Tax Matrix (Pvt) Ltd and the chief executive of Matrix Tax School. He writes in his personal capacity.