From our experience a lot of companies do not fully comply with section 116 of the Income Tax Act 2015 (Act 896). This section indicates that a resident person shall withhold appropriate tax in accordance with paragraph 8 of the First Schedule when making a payment which has a source in the country.
We have seen taxpayers carrying high tax risk relative to withholding tax non-compliance, which culminates in substantial assessments including interest and penalties. So if you were unable to comply and the company is surcharged by the GRA, what remedies exist to mitigate the liability?
The recovery window
Under section 117(5), a withholding agent who fails to withhold tax but pays the tax that should have been withheld to the Commissioner-General is entitled to recover an equal amount from the withholdee — the person to whom the payment for goods, works or services was made.
You can take advantage of this window by doing the following:
- Prepare a schedule of the withholding tax when making payment to the GRA, to enable a withholding tax credit certificate to be generated for the withholdee or their account to be credited.
- Furnish the withholdee with the tax credit certificate.
- Discuss with the withholdee a refund to you, or an alternative payment arrangement.
It is recommended that by the third quarter of the year of assessment a tax health check is conducted to flag any non-compliance, so that remedial action can be taken to avert withholding tax surcharges.