I don’t know if I am the only Zambian who isn’t offended by Plans by the
Zambia Revenue Authority to tax home owners who are land lords a 10%
withholding tax on all income from rental payments. This move has not been
received well by most Zambians. There have been complaints from tenants who
feel, the action will make landlords increase rental charges while the
landlords feel they will be robbed of their ‘hard earned’ income.
Well, I choose to differ. First of all, for many years many people
have asked ZRA to broaden it’s tax base and not overburden the formal employment sector which
has over the years been the easiest source of income for the treasury through
the much detested Pay As You Earn (PAYE). Many people have asked the tax
collectors to tap into the huge informal sector, as well as the formal sectors
such as markets and bus stations where collections do not end up in the central
treasury but mostly pockets of party cadres.
ZRA
defines Rent as; “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”. It is important to note that the
property from whose rentals the Withholding Tax is deducted must be situated in
Zambia.
The
rate of Withholding Tax is 10%. ZRA explains that 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).
ZRA
explains that 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.
Why this has received criticism, I don’t know. The fewer sources for government taxation, the more likely the few being taxed will be taxed highly. Few people with a day job will have percentages of their incomes deducted while a lot of other people will not have their earnings taxed. There are a lot of people whose income is rentals and these have never been within the taxman’s radar.
The tenant should remit the amount so deducted to the Zambia Revenue Authority.
Why this has received criticism, I don’t know. The fewer sources for government taxation, the more likely the few being taxed will be taxed highly. Few people with a day job will have percentages of their incomes deducted while a lot of other people will not have their earnings taxed. There are a lot of people whose income is rentals and these have never been within the taxman’s radar.
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.
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Patrice, insightful write-up as always. I agree with you to a point. '
ReplyDeleteI agree that the government needs to widen the tax base and as such need to explore revenue from less traditional sources. That said, and as you rightly have defined it, WHT is not necessarily a tax in that in most instances it is not a final tax but an advance on the final tax, whose credit can be obtained when making final tax returns , However this applies to business who make tax returns as per their business year end. That in itself says that WHT is not the right way to go if government is serious about widening the tax base.
Just a bit of history, WHT on rentals has been in existence for a number of years only that then it was at 15% and was never really enforced as there was and still is a debate as to its economic viability. In other words, it costs more to collect the tax than what the tax itself brings in, unless you can coerce tenants to go to ZRA and make payment. Even then, you need an updated valuation roll, a register of all landlords and tenants and a data-base of the amounts of monthly rentals each of the tenants pay.
My biggest problem with WHT on domestic use rentals is that Landlords are merely transferring the tax burden to the tenant, for whom it is a final tax as they can't clam it against PAYE or VAT. This in essence means that the tax base is not widening but the same pockets are being even further taxed. It is the same pockets that pay PAYE, VAT and Road Tax that end up paying WHT.
As such there is bound to be a lot of apathy towards the same.
This is very insightful from you both Patrice and Keith.
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