Withholding Tax was first introduced in Zambia on Interest, Management and Consultancy Fees, Royalties and Public Entertainment Fees in 1971. The Withholding Tax has over the years been extended to Dividends, Rent, Commissions and Payments to Non – Resident Contractors.
What is Withholding Tax?
Withholding Tax is not a tax but a means of collecting that tax. Withholding Tax is deductible from a payment by the person who is liable to make payment (the payer) at the point in time the person to whom it is due to be made (the payee) becomes legally entitled to it (date of accrual). The payer is required to pay the tax deductible to the Zambia Revenue Authority by reference to the date of accrual no matter how, when or where payment is made.
Rent means “a payment in any form including a fine, premium or any like amount, made as a consideration for the use or occupation of or the right to use or occupy any real property including personal property directly connected with the use or occupation or the right to use or occupy such real property”. The rate of Withholding Tax is 10%. Tenants are supposed to withhold 10% from the landlord and pay this to ZRA. If the rent is 1500, you have to pay 1350 to the landlord, keep 150 and pay this to ZRA.
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Witholding Tax has been necessitated by reckless government expenditure
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The payer (tenant) is responsible for deducting Withholding Tax from gross rentals on the date of accrual of any amount due to the payee (landlord). The tenant should remit the amount so deducted to the Zambia Revenue Authority. However, this is not the final tax. At the end of year, the taxpayer will be required to submit an Income Tax Return containing all sources of income, including rental income. The final tax will be determined through an assessment. The Withholding Tax deducted is taken into account before arriving at the final tax. In other words, WHT is the money that a tenant holds on behalf of the government from the rentals s/he is supposed to pay to the landlord. The tenant in return sends the money to ZRA, obtains a receipt and gives that receipt to the landlord as proof that the money has been remitted. Alternatively, the landlord can get the whole rental payment, and then walk to ZRA, where he/she pays for himself at a reduced rate. If the landlord wants to put the onus of paying tax on the tenant, THEN THE LANDLORD SHOULD PUT IN THE TENANCY AGREEMENT A CLAUSE SAYING THE TENANT SHALL PAY A NET OF ……………….. AS RENTALS. This means that as tenant you have to add up the % for tax to know your actual rental payments. Otherwise a tenant is supposed to withhold the tax on behalf of the government.
It all depends on whether you signed a net agreement or gross agreement. If net, then what the landlord receives or charges is net of taxes e.g. net agreement at 1,500 per month will attract a 166.67 WHT (payable to ZRA) to be added to 1,500 to make the gross (including taxes) rent of 1,666.67. If it is however a gross agreement then the landlord should only be paid 1,350 and the 150 remitted to ZRA by the tenant. So make sure you sign gross agreements that way the amount indicated will be your absolute cost.
[pullquote]In general, tax withholding is good for the government and bad for taxpayers. This Tax helps to broaden the tax net by bringing otherwise unknown tax payers or tax evaders into the tax net.[/pullquote]
This Tax prevents tax evasion(s) which are usually disguised in obscure transactions. This Tax makes tax payment less cumbersome for the tax payer who may not have the culture of filing tax returns and making tax payments. This Tax guarantees regular flow of revenue to the government, and this Tax is a form of voluntary compliance with tax Laws.
Why it will fail
It is no doubt that this tax has been necessitated by reckless government expenditure. Yes this law has been in existence for a longtime, but the same reasons it failed then, are the very reasons it will fail now.
- The Authority clearly has no means to collect, they have no database of tenants and landlords, and there I foresee a problem.
- Have you any idea how unplanned and uncoordinated or towns are?
- The other problem is willingness of landlords to accept the system; this means that landlords would rather pass on the costs to their tenants thereby increasing the cost of living to the majority of Zambians who are mostly tenants.
- And is the tenant even willing to sacrifice his/her time to stand in line to remit? Oh! The online system you argue? But is the average Zambian deep in the rural area or just here in Lusaka in the compounds able to utilize that?
The irresponsible fiscal policies of this administration have caused the national debt to grow at an astonishing rate. The government embarked on a lot of projects without proper planning especially on the source of funding for the projects and the problem has been compounded by theft, corruption, and the many by-elections. And now, Zambians will be forced to repay debts being contracted by the government even when they have not seen the fruits of the same debts through such taxes as the Withholding Tax.
Which begs the question; why not consider increasing the tax base by providing some of us the unemployed youth’s jobs so that we can contribute through PAYE? Sounds like a win-win to me.
By Leonard Zulu
Intelligent points! The reasons for the failure are very clear and ZRA should have worked on issues like a database a long time ago. If they want compliance and support and to make their tax equitable, they should exempt poor landlords like those in Misisi or Kanyama. Only tax those whose rent is say K2,000 and above should be liable.
Leonard Zulu, unfortunately such intelligent ideas are not entertained in PF, in fact you will be labelled a UPND cadre. Somethings are just common sense, lets show theses guys the door in 2016. They need to go and enjoy the Jemasoni from the suitcase!
This article started well then along the way it immensely got deprived of wisdom, knowledge or facts. Trying to tie government currents fiscal spending to explain witholding tax and possibly make a political appeal .. this statement ”Which begs the question; why not consider increasing the tax base by providing some of us the unemployed youth’s jobs so that we can contribute through PAYE? Sounds like a win-win to me.” is pure lack of wisdom . You do not create employement that easily like its child pla and who said the government is the only employer?
..and secondly .. ”the government is stealing” .. its the bloody civil servants that steal!!
No Xaviour why exempt some people from paying, that is ridiculous. Do know what some of us have gone through and where we started from to have these properties. This is exactly the same attitude that makes most Zambians lazy and drinking ALL the time. Hand out mentality is killing this nation if there is a law let it be for all rich or poor. How many jobs are indigenous Zambian self made property developers creating hw many builders, carpenters, electricians, plumbers are eating off their plates? Let them WORK (even as a daka boy better if they dont have skills and learn) not this giving hand outs idea about. Please we had enough of that kind of tandizo brain damage Zambians suffer from as a result of a past president I wont mention.
PF minions are runing helter skelter to find ways of raising income so that their PF government can regain its credit worthiness which has been decimated in just 4 years they have been in power due their reckless spending.
Right now they are fishing a dry one because the only people that can afford paying such stealth taxes are them selves the PF minions who have a bit of stolen money stashed some where.
Just watch out to make sure PF does not begin to raid your Bank accounts in order to fund their lavish life styles for they can not borrow any more.
A Zulu has mixed issues and non issues and in the process failed to make sense. Taxes are their to enable govt have funds to use. Not the nosense of poor planning or over borrowing. In fact as well stated, the law has been in place since 1971.
People are employed where vacancies exist, not to raise taxes. What is stopping Zulu from starting a company and become an employer? Do not talk about capital that is an old way of thinking.
Next time stick to what you understand, otherwise we shall suspect you belong to a group of failed politicians.
@Obatara Anabwera, I agree with you, but this is not a political article but an intellectual one. one that is intended to provoke the minds of our people and our leaders. it is one that strives to inspire constructive debate. I believe that there should be a difference between intellectuals and cadres, it is rather unfortunate that sometimes the latter are more pronounced in this our beloved society
A good piece spoiled by political connotations. words like reckless are political and spoil the jist of the message. The author should recognize the importance of revenue diversification and provide suggestions on how the scheme can work. that is if he is a patriot.
@ ichintuchintumwene
I agree with you. The article offers an insightful analysis of the withholding tax but detours and losses marks at the end because of the political coloration it tugs along. The second last paragraph gives you an impression you are reading a different article altogether and not one on withholding tax. That said I agree that this is one tax the government will have challenges to implement.
As long as ZRA is staffed with PF cadres and relatives nobody will willingly part with their money to support this useless govt. Tax evasion will continue as long as the majority Zambians feel injured by a reckless and selfish govt.
?@Ichintucintumwene, it is because of my patriotism that I choose to share my intellectual thoughts. this article is not a political one, it was never intended to be so, but the nature of the topic dictates that we touch on the political sidelines. why would we talk about WHT and not talk about govt when they are the ones that are implementing it. the way I see it, its a matter of perception. whether u choose to see it as an intellectual and constructively debate on it or see it as a cadre and be political about it. all in all its our Zambia
We are paying all these taxes to enrich a few Zambians while the majority of us are wallowing in poverty. I will not pay this WHT let the government first improve the cost of living. The government has over borrowed and now wants to throw the weight onto poor Zambians. We had already paid tax on building materials so you want us to pay double?
Good attempt. Lets not throw out the baby with the bath water. We all know and appreciate the hard work that “some” honest landlords have gone through to acquire that property. In the same way, a farmer or a civil servant is taxed that is the same way everyone will be taxed. This should be a graduated tax based on revenue of an individual over a year.
The world over landlords pay tax on earnings from their lettings. Zambia isnt an exception. The question is implementing a system that both contributes to government coffers and at a realistic percentage. The other thing that is causing resistance is that some members of society, namely, government doesnt seem to be in the same mind of taxing street vendors as opposed to landlords hence causing resentment. There needs interdisciplinary…
But the same land could be a civil servant, farmer and other things. The same house was taxed during building via material purchased and the gross income used to purchase these items.
Zambia is not an exception yes but in your own view do you see it working? and how?
WITHOUT A PROPERLY WORKED OUT DATA BASE THIS WHOLE THING IS A HOC. TO ADD SALT TO THE SAUL, IT IS A RECIEP FOR CORRUPTION AND AVANUES FOR INDIVIDUALS TO MAKE MONEY FOR PLUNDERING. ON FACE VALUE IT IS A GOOD IDEA, BUT GOVERNMENT NEED TO WORK OUT MODALITIES TO PROTECT THIS PUBLIC RESOURCE. THE WHOLE THING IS DONE HASTLY JUST BECAUSE THE PF ADMINSTRATION IS BROKE TO BORNE MARROW. USUALLY IT IS THE CASE WHEN A GOVERNMENT IS RUN BY ILLITERATES WHO NEVER SIT DOWN TO MAKE A STRATEGY (cnp). I WONDER WHETHER WE HAVE SOME EDUCATED PEOPLE IN THAT SECTOR OR IS IT JUST WAKING UP FROM THE SLEEP AND SAY MONEY CAN BE GENERATED THIS WAY WITHOUT LAID OUT STRATEGIES. ZAMBIANS ARE FED UP BEING LED BY UNEDUCATED NO PLANNING INDIVIDUALS.
@1.1 ?Obatala Anabwera. You problem is you want bring in PF all the time. I support PF but I do agree with the points raised since they concern me as an individual. PF did not give me money to build my house and neither is PF going to feed my family. No wonder you Zambians will even fight over Chelsea FC as the club knows you even exist.
such topics are what we should talking and be emotional about than pilatos song (alungu). cheers to the author though he missed one or two points.
Such discussions are national building i encourage all those tax brains share with us.
Why should our Members of Parliament continue to be exempt from income taxes on the emoluments and gratuity?
Next time the buyer will be required or given the option
to remit the VAT payable.
The article has explained how WHT operates. I however wish to add one or two points. As per ZRA website, and as stated in this article; WHT is NOT A FINAL TAX. Yet in some pronouncements by ZRA officials they want to bring confusion by stating that because WHT rate was reduced from 15% to 10% then WHT is now a final tax. This is wrong and there is no law that makes WHT tax to become a final tax.
Determination of the final tax only takes place after the tax payer, in the case under discussion, the land lord submits his income tax return at the end of the financial year containing all sources of income including rental income, and all allowed personal deductions and exemptions together with all allowable expenses incurred in managing the rental property like depreciation and other…
expenses deducted.
Where the total income is more than personal deduction, exemptions and expenses, then you have taxable income, which is then multiplied by the tax rate to get the income tax due that the tax payer should have paid. From this income tax due is subtracted the WHT (if it has already been deducted) to get the net tax due and the tax payer will be required to pay ZRA that particular amount.
However the alternative situation is also possible where the deducted WHT is more than the income tax due, in which case ZRA should refund the tax payer from whom there have over deducted the WHT.
Therein lies some of the difficulties with the way this WHT issue is being handled.
By ZRA officials giving an impression that WHT is a final tax, when in fact it is not and there…
is no law to support this fact; signals have been sent that ZRA will not be giving refund in the event that WHT deducted is more than the assessed income tax due.
A tax payer even if receiving retail income is not obligated to submit tax returns if his overall situation at the end of the financial year does not result in a tax liability. Because of their low incomes, land lords in rural and shanty compounds will in most cases be due a refund from ZRA if WHT is deducted at source tenant. They can therefore continue to get there rental income gross, and not pay WHT.
This WHT has the problems:
1. There is no culture of submission of Tax returns in Zambia
2. ZRA has no track record of paying refunds; the issue of vat refunds to the mines is a case in point.
3. The fact that one has…
a retail property does not automatically mean that person is liable to pay tax. There has to be an income tax return and an assessment made to determine this.
@martin.well explained .in usa the tax system is almost perfect but their are loopholes which business people take advantage of.i say nothing wrong for the author to bring in pf bcz its pf govt which is trying to enforce the law and the best way to sort any problem is to check the root cause;in this case exessive expendure,bloated govt and reckless borrowing.zambia will only develop when it will have a president who will not put power as a priority but development.u catch a thieve and later u say he is your best friend,how will pipo view u…u are also a lazo.
My suggestion is that the gvmnt only taxes thoz lettin out commercial properties,thoz lettin out to foreigners or landlords who r not citizens of zambia
I appreciate all the comments (positive and negative), please let us have clean debates no matter the differences in opinion, these are intellectual thoughts. let us have a spirit of constructive debate only that way can we enlighten one another on the various issues that affect us in society. these article though touching on political insights is not in itself political, but the nature of the topic and the necessity of the variable (WHT) dictates that we touch on its political implication. I am a scholar, and my analysis of issues believe me not are mostly devoid of political focus, this is because I want to strive to be as objective as I can. THANK YOU ALL FOR YOUR RESPONSES TO THIS ARTICLE AND GOD BLESS THE NATION