GRA clarifies 2% withholding tax not applicable to commercial trade

The two per cent withholding tax on contractors’ earnings (individuals/companies) is not applicable to regular day-to-day commercial activities involving the trade in goods and services, the Guyana Revenue Authority (GRA) has said.

Rather it applies to payments to resident businesses, individuals and companies with written “contractual arrangements,” it said in a statement yesterday.

The GRA explained that “Contractors” as defined in Subsection 14 of the Income Tax Act Chapter 81:01, refer to persons “contracting with or employed directly by an owner or an agent of the owner to supply services, goods, materials, equipment, or personnel in the furtherance of the services.”

The agency further noted that it is these individuals who, in keeping with Section 39 (13) of the Income Tax Act Chapter 81:01, are subject to a withholding tax at a rate of two per cent on every payment disbursed to contractors in excess of $500,000 for a contract.

Consequently, payments such as those made by rice millers to rice farmers for paddy are not subject to the two per cent withholding tax, the statement advised.

It explained that the two per cent tax withheld must be remitted to the authority, and will be treated as an advance payment towards the quarterly taxes payable by the taxpayer (the person from whose payment the two per cent was deducted).

“This results in the reduction of the quarterly payment of the individual and companies from whom the tax was withheld. Receipts will be issued by the Guyana Revenue Authority as proof that this payment was made on their behalf,” the statement said before adding that it is important to note that withholding tax is also applicable to non-resident disbursements and payments and the rates range from 10% to 20% depending on the country of residence.