Withholding Tax Challenges: What You Can Do To Mitigate?
If you have ever dealt with Ghana’s withholding tax system, you know it a costly and hassle filled experience!
If you do not know what withholding tax is, and what to expect after they withhold taxes, you are in for a painful experience.
In this blog, we discuss the withholding challenges, and what you can do to limit its impact.
What is a Withholding Tax?
The government requires anyone paying for goods and services to withhold a portion and pay it over to the Ghana Revenue Authority (GRA) when the transaction exceeds GHC 2000. The amount withheld is a withholding tax. This is not a tax but a prepayment of tax.
Withholding Tax Certificate
The person withholding tax from a payment must give you a withholding tax certificate (WHTC). The WHTC is proof that you have prepaid tax, so you can offset that against your annual taxes with confidence.
Without, it is difficult to offset taxes withheld against your annual income tax, as you cannot prove tax paid to GRA.
This should be a simple process, but it is not.
How the System Works
The problems you face getting a withholding tax certificate arise because GRA issues the withholding tax certificates. Assume that A has withheld a tax from payment to B. A must pay over the tax withheld to GRA. The GRA must issue withholding tax certificates to A, who then passes it on to B.
There are several points at which the system breaks down, leaving the person due the certificate a frustrated pawn of the system.
Problems With the System
Some problems with the system are:
- If person withholding does not pay the withheld amount to GRA, there is no chance that you will get a withholding tax certificate.
- The person withholding pays the tax to the GRA later than he should. You will get the certificate at later time than you expect.
- The person paying does not collect the certificate, or if he does, he does not send them the payee.
- Many of the problems stem from the GRA. Often, they give excuses like,
- their system is not working.
- workload, missing WHT returns and payment receipts, to mention a few, prevent them from printing the certificates.
Delays in getting the withholding tax certificate has a heavy financial cost.
- You can use WHT certificates issued in the current year period to offset estimated taxes in that year, or your income tax at the end of the year. But you can’t use unutilized withholding tax credits from other periods to offset estimated taxes in the current year. You can offset such credits only against annual corporate income tax.
- When there is a tax audit, the onus is on the taxpayer to prove all the credits offset against income tax to determine the tax payable. To prove this, you must provide the TCCs or tax receipts. If not, you end up paying additional taxes and penalties because you do not have the TCCs even though they withheld taxes from you.
The delays in getting TCCs, and the posture of GRA results in situations where you must find additional cash to pay taxes because of the failings of GRA and its agents. A person who withholds tax from payment is an agent of GRA.
You can mitigate the impact of the system by doing the following.
- Keep a monthly list of all withholding tax certificates and the original and duplicate copies.
- Keep records of cover letters and supporting schedules of duplicate TCCs submitted to GRA during the year.
- Request for a copy of the withholding tax returns filed by your customer to prove tax payment anytime there are delays in getting the WHT.
- Chase your customers for your TCCs.
To limit the impact of the system you must:
- expedite collection of WHT certificates from customers and the GRA.
- keep proper records of WHT certificates received from customers.