Fair or Not? , Withholding tax on local contracts

Fair or Not? , Withholding tax on local contracts

The Withholding tax on local contracts has not been one of the well celebrated measures in the country and that being the case, the law seems to not pay much attention on 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.2022 brought a new revelation in terms of the rates in connection to this withholding tax, we saw an increase from the previous 10% to 30% in a bid to increase tax compliance by all persons. This is deducted on any payments (supplier) which has no tax clearance.

Though this might have injected fear among the tax community, the increased rate of withholding tax among the uncompliant might not lose more of their proceeds .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 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. This is where most of the question marks and doubts start to boom, 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 main question could be “Why one would need to pay 30% when paying the government and in the end one might not get licensed if they fail to pay enough?” Private sector cannot increase business cost because of inefficiencies in the Government entities. An appeal to the government would be to ease down on the penalties because this would then defy the purpose of the withholding tax which has been alluded to supra.This in a way punishes the customer too because they will have the 30% deducted and not from the purchaser. 

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 in all odds. 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 it would be possible to obtain tax credits the effects of the constrained cash flow may never be recovered from by business.

Tags: No tags

Add a Comment

Your email address will not be published. Required fields are marked *