It’s common for service providers and investors to receive from their clients payments slightly less than the invoiced amount. The reason is, the client is required by law to withholding tax and remit the tax so withheld to the government. Tax is withheld at different rates depending on the type of income and residential status of a person.
Click the link for details on withholding tax rates
https://taxdon.co.ke/withholding-tax-rates/
The withholding tax mechanism ties together the three parties (The Payer, the Payee and KRA) in everlasting chains. The party making payment must quote the PIN of the PAYEE that generates information in the ledgers of each of the three parties. This information will always remain for as long as I-tax system exists. In social media language we say one party has been snitched (reported) by the other.
It’s therefore incumbent upon the recipient to declare such income in the end of year returns. This has to be the case except in a few cases where withholding tax is final, like in case of dividend income and interest income for Individuals. Filing returns by the recipient is only telling the second half of the story the first having been told by the client. The recipient at this stage is allowed to claim any expenses incurred in earning such income. Note; the amount to declare is gross income but a set off for the withholding tax paid in advance is allowed against the tax payable.
Now, the author of the story is the client making the payment. Can he write a different script? One there is no incentive for not telling the story as it is since the tax burden is not on them, it is on their clients. Again the amounts subject to withholding tax happen to be claimable expenses if the client is in business. If the amounts have not subjected to withholding tax as required will not be allowed for purposes of determining taxable profits. Finally, non-filing of withholding tax is an offence attracting a penalty equal to 10% of the amount involved.
Please note that the due date for filing returns is on 30 June, however if thereby taxes to be paid the due date is 30 April
For clarification and guidance
Contact us on don@taxdon.co.ke