Importance of withholding tax

THE attempt by the Zimbabwe Revenue Authority to start deducting 10 percent withholding tax from tobacco farmers’ earnings met dogged resistance from various quarters. They felt that farmers — whose product is earning the country significant foreign currency — were being unnecessarily penalised. However, the levy was specifically meant for farmers who did not have tax clearance certificates as is supposed to be the norm.

For a country that is battling to generate revenues to meet recurrent expenditure, it is rather surprising that the rate of tax avoidance and evasion is dispiritedly high.

There is no doubt that tax authorities are losing a lot of revenue to companies and entities that are not registered for tax purposes.

Withholding tax, thus, is an instrument that can be conveniently used to enforce compliance. The law is the law and it has to be religiously followed. Even Jesus Christ said in Mark 12:17, “Give back to Caesar what is Caesar’s and to God what is God’s”.

But tax collectors are agents who everyone loves to hate. Biblical figures ike Zacchaeus and Matthew, who were tax collectors, were intensely hated.

While many dislike paying tax, the bottom line is taxes have to be paid as they provide the lifeblood for any economy.

In this regard, wherever income is generated, tax has to be paid. It is quid pro quo: citizens pay to get services from Government.

It is, therefore, the duty of every company that trades or does business without a valid tax clearance certificate to withhold that 10 percent tax.

At a time when international sources of finance have dried up because of sour relations with international financiers, Zimbabwe has to fund most projects from internally-generated resources.

According to Zimra, “any person who enters into a contract (whether for goods or services) of an aggregate amount of US$1 000 or more over a year of assessment involving a single transaction or multiple transactions should comply with Section 80 of the Income Tax Act (Chapter: 23:06).”

The legal requirement is that 10 percent withholding tax is deductible from all amounts payable to all persons who enter into contracts with the State or a statutory body, a quasi-Government institution, and taxpayers registered with Zimra, unless the payee furnishes the paying officer with a tax clearance certificate.

The amount withheld is supposed to be remitted to Zimra on or before the 10th of the month following that in which the payment was made.

Also, the payment should be accompanied with a schedule showing all names of the persons from whom the 10 percent was deducted and attached to the prescribed form (Rev 5 form).

Any paying officer, who has withheld any amount, should furnish the payee concerned with a certificate, in a form approved by Zimra, and should clearly show the amount withheld.

The amount remitted is retained until such a time that the payee has been assessed for the respective tax year at which time the amount is allowed as a credit against any tax due.

Any excess is refunded to the payee or may be set off against other tax liabilities. However, any person who fails to deduct the withholding tax is liable for the payment of the amount due and a 100 percent penalty is chargeable on the amount due.

Interest is also payable on the penalty charged as long as it remains unpaid, according to Zimra. This is well spelt out in the law; and it is not new.

It must be noted that it is Government’s discretion to relax this law.

But this is rather problematic because selectively picking groups that should be exempted from paying tax creates illwill and disharmony among taxpayers. The incentive to evade and avoid taxes becomes irresistible and unavoidable.

Being ignorant about one’s tax obligations can be very unpleasant, especially when tax audits are eventually conducted.

In as much as some Zimra officials can be too tough and unreasonable, the laws of the land must be respected.

It is important to adhere to the law, but I am of the opinion that cases should be treated differently and at times professional judgement is required to ensure sustainability of existing companies.

Every citizen should be treated fairly and it must be noted that for Government to function it needs to collect adequate taxes. Tax is always painful to pay but it must be acknowledged that it makes life easy for Zimbabwe if everyone plays a part and pay their taxes.

So this issue must be considered with the urgency it deserves.