Have you ever been hired to offer consultancy services? Was the payment received the same as what was stipulated in the contract/ agreement signed? Most likely, the answer to the latter question is a ‘no’. The amount received was probably less by 5%.

You must have felt ‘played’ and probably contemplated storming into the finance office or the manager’s office of the party you transacted with to seek answers.  However, just before that, you receive an email from iTax with a ‘Withholding Certificate’ attached. The mail immediately allays fears of any foul play. But what is this tax that was deducted?

What is Withholding Tax?

This tax is referred to as Withholding Tax. It is a retention tax; the payer of certain incomes is responsible for deducting tax at source from payments made and remitting the deducted tax to KRA. Some of the incomes subject to Withholding Tax include management/professional fees, dividends, royalties, interest and winnings from betting and gaming. The percentage deducted varies depending on the nature of the income earned. The varying percentages are also dependent on whether one is a Kenyan resident or a non- resident.

To whom does Withholding Tax apply? There are two parties, the withholder and the withholdee. The Withholder is the person who is making payment and withholds some money to remit to KRA; while the withholdee is the recipient of the income being withheld.

Is Withholding Tax a final tax?

Depending on the nature of a transaction, Withholding Tax can be a final tax or an advance payment. When it is made as an advance payment, it is used to offset the recipient’s tax liability to the government. If after filing the tax return it is discovered that the tax liability is less that the tax withheld, a refund case may arise. On the other hand, additional tax maybe due if the tax liability is more that the tax withheld.

Payment of Withholding Tax

The amount withheld should be remitted to KRA on or before the 20th of the following month. Payment of withholding tax is done online via iTax. The withholder is required to generate a payment slip on iTax and present it at any of the appointed KRA banks to make the payment. The withholder can also pay via M-PESA using the KRA PayBill Number 572572. The Account Number is the Payment Registration Number (PRN) quoted at the top right corner of the generated payment slip. 

When you successfully remit the deducted amount to KRA, the system generates and sends copies of the Withholding Certificate to the registered email addresses of both the withholder and the withholdee.

How to file Income Tax Returns with Withholding Certificates

Should I file a return if I have a Withholding Certificate? Yes. You are required to download the IT1 return form and declare income earned as well as the tax withheld. The balance of tax should be paid on or before 30th April of the following year. Click on the link below for more information on how to file. https://www.youtube.com/watch?v=akmfCEnTf1U

Withholding Tax provides an avenue for boosting government cash flows as an advance tax payment. Secondly, for countries which operate a source-based taxation model like Kenya, withholding tax allows all income derived from that country to be taxed. Source-based taxation model means that for any income to be subjected to taxation, it must have been derived or accrued from the country where the economic activities are undertaken. 

Rhoda Wambui