Witholding Tax (WHT)

Withholding Tax (WHT) doesn’t constitute a separate tax entity but functions as a prepayment of income tax for specific transactions. In essence, when such transactions occur, the payer is legally obligated to deduct WHT at a specified rate, determined by the nature of the transaction and the parties involved. The withheld tax is then forwarded to the relevant tax authority. The primary aim of WHT is to curb tax evasion, broaden the taxpayer base, and furnish the government with revenue to meet its budgetary needs.

The Companies Income Tax (Rates, etc., of Tax Deducted at Source (Withholding Tax)) Regulations (WHT Regulations) delineate the payments subject to WHT deduction and the corresponding tax rates. These payments encompass various aspects of building, construction, and associated activities, as well as contracts, agency agreements, excluding sales in the ordinary course of business, consultancy, professional, management, and technical services, along with commissions.

The interpretation of sales in the ordinary course of business has been a recurrent point of contention between taxpayers and tax authorities, leading to many taxpayers enduring WHT deductions on income derived from such sales.