WITHHOLDING
TAX ON PAYMENTS AND
IMPORT ITEMS
1.
Definition
Withholding tax is the current payments of income tax at time of goods
imported and payments made on
account of goods and certain services.
2.
Rates of withholding tax
On
imported goods at 3% of the sum of cost, insurance and freight (CIF).
On payments made to taxpayers at 2% on cost of supply goods involving
more than Birr 10,000 in any one transaction or contract and services
involving more than Birr 500 in one transaction or service.
3.
When the tax is due?
4.
What is the withholding agent?
Withholding
agent is any person with a tax collection obligation as provided in
the income tax proclamation N0 286/2002.
5.
Who are withholding agents?
Organization
or any company Government Owned Enterprises, Share Co, private Limited
Co, partnership, etc incorporated under the law of Ethiopian or abroad,
private non-profit organization and Non Governmental Organization
(NGO)
having
legal personality.
6.
Obligations and records of withholding agents
Ø
Issue serially numbered official receipt to persons and organizations
from whom tax is withheld;
Ø
Fill in a form provided, taxpayer identification number (TIN),
total payments and tax withhold.
Ø
Transferring the tax withhold to the tax authority within ten
days from the end of month of transaction.
Ø
Withholding agent shall maintain and make available for
inspection, records in relation to each fiscal year for payments made
and tax withheld.
Ø
The
withholding agent shall keep the records for five (5) years after
the end of the fiscal year to which the records relate.
7.
Which types of services are subject to withholding tax?
Types of services that are subject to withholding tax: -
a) Consultancy
b)
Designs, written materials, lectures and dissemination of information;
c)
Lawyers, accountants, auditors and other services of similar nature
d) Sales
persons, arts and sports professionals and brokers including insurance
brokers and other commission agents
e) Advertisements
and entertainment programs for television and radio broadcasts
f) Construction
g) Advertisement
services
h) Patents
for scientific and intellectual works
i) Rent
for lease of machineries building and other goods including computers
j) Maintenance
services
k) Tailoring
l) Printing
and
m) Insurance
8. What
if the withholding agent fails to withhold?
Ø
If a withholding agent fails to withhold or under withhold
he shall be made to pay the full amount of the tax to the Tax Authority,
but the withholding agent is entitled to recover this amount from
the payee.
Ø
The tax withholding liability imposed by the income tax proclamation
shall be treated as a tax liability for purposes of any article providing
taxpayers with the right to contest the amount of tax due or to recover
tax paid.
Ø
An agent who fails to withhold tax shall be liable for a penalty
of Birr 1000 for each instance of failure to withhold the proper amount.
The above-mentioned penalty of Birr 1000 is imposed on the
following individuals.
A manager who knew the failure
A chief accountant or senior officer who is responsible for
supervision or control of withholdings
Ø
A withholding agent who makes a payment to a person who
has not supplied a TIN (Taxpayer Identification Number) is required
to withholding 30% of the amount of the payment.
Ø
A taxpayer who has not supplied the TIN to the withholding
agent, in addition to the above 30% is liable to pay a fine of Birr
5000.00 or the amount of the payment whichever is less.
9.
How the Tax Authority accounts for the collection of tax on imports
and the withholding of tax on payments?
If
the amount of income tax collection on the import of goods and tax
withheld on payments to specified person results in underpayment,
business income tax actually due for the year, as determined at the
time of declaration of income tax, the taxpayer is required to pay
the difference with the declaration. If the amount represents overpayment
of the tax actually due for the year the Tax Authority shall refund
with in 90 days.
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