As in our previous discussions on the PAYE Tax system, this week we will be discussing extensively withholding tax and the ‘modus operandi’ of the Withholding Tax System as adopted and applied within the Gambia’s tax jurisdiction, under the domain of the Domestic Taxes Department. 

Therefore, the curtain has been cut and here we go to the discussion proper! What is/ do we understand about the concept of withholding tax? Simply, withholding tax is a system of tax collection devised by a tax authority as a means in easing the collection of already withheld taxes from payees through their payers (employers) to the Tax Department on a monthly, quarterly or yearly basis. What is this system all about? This system allows the payer (employer) of certain incomes to deduct tax at source from payments due to certain payees in the form of interest, dividends, employment, commissions, Directors fees or payments made to contractors and sub-contractors and then remit it to the tax authority.

In this regard, it depends on the income or any other emoluments received by the payee (s) depending on the services rendered or provided in receiving payment (s) in return for the provided service (s). In addition, withholding tax being an unpopular tax is legally guaranteed for its collection and administration by the Income and Sales Tax Act -2004 and is collected on an Agency basis.

Withholding tax covers a wide range of incomes such as: Personal Income Tax – that covers employment and business incomes, contracts/sub-contracts, interest, dividends etc.

Incomes liable/subjected to withholding tax
The following types of income (s) are liable for withholding tax once derived at source in The Gambia.
a. Commissions paid by an insurance company to brokers/or others
b. Management and Professional fees
c. Royalties
d. Interest, dividends or contractions received by both residents and non-residents are subjected to withholding tax operations
e. Shares of profits or interest on savings/ deposits
f. Income from good will
g. Consultancy, agency or contractual fees

The rationale for withholding tax
Any good tax system desire to have in place an effective accounting, collecting and monitoring mechanism in its revenue enhancement drive as a strategy in ensuring efficiency and effectiveness in revenue collection, hence this led to the inception of the Withholding Tax System in The Gambia.

Therefore, the WHT system regarding employment income takes the PAYE tax system. This allows deductions made on paid incomes on a monthly basis and paid to the tax office on the prescribed time; i.e. on or before the 15th day of the following month.

The reasons in adopting the Withholding Tax system are obvious and are as follows:
a. To ease the collection and accounting procedures of withheld taxes from payers to the Tax Office;

b. To facilitate or accelerate better tax collection and administration.
Interestingly, the reason for adopting the Withholding Tax System is based on’ global best practices’ and its success stories in countries like Malaysia, the UK and Kenya on its wheels of accounting and collecting due taxes and on time from its taxpaying public.

However, is The Gambia’s case the same? Indeed, the Gambia’s case is different and proving problematic due to the low level understanding of the Withholding Tax System procedures and processes, and the resistance culture of non-compliance/ or unwillingness of some taxpayers to part away with their earned incomes. Paying tax is fundamental and is a test of an individual’s patriotism in the country’s march towards continued development across all sectors of the economy.

Benefits of withholding tax
Withholding tax devised as a system of accounting tax deductions and remitting of tax withheld has a number of benefits. This is because tax payments go with benefits. Therefore, these benefits are not specific to special group of people, but are generalized and centered on the needs and aspirations of all within the community; regardless of gender, status or geographical locations.

The benefits in returns provided to taxpayers are in the forms of developments and improvements in road constructions networks, improvement in the health care service delivery, provision of security and education among list of others for public usage.

Therefore, the benefits of withholding tax system to the tax authority and its esteemed taxpayers are as follows:

1. Bringing the much-needed revenue to government
2. Time to calculate and remit the deducted taxes
3. Ease of collection, in that the payer of the income after deducting the tax is required to
remit it to the tax office for proper accounting.
4. Earlier receipt of tax income by the Domestic Taxes Department, as it does not have to
make an assessment before receiving payments.
5. Ensures that certain income does not escape being taxed. The deduction of the tax is
the responsibility of the person paying. Withholding tax deduction must be paid over to
the Commissioner of Domestic Taxes
6. Issuance of Withholding Tax Certificates signifying payment of tax (es) withheld.

Types of withholding taxes
1. Paye
2. Dividends
3. Interests
4. Consultancy fees
5. Contractors/sub-contractors

1. Paye – as a system of tax collection is administered on taxes withheld through employment incomes payees (employees) by payer (s)/ employer (s) on a monthly basis. This is a very good tax system that gives the payer of income the ‘onus’ to charge, calculate and remit the withheld tax to the Tax Authority.

2. Dividends - refers to payments of profits/shares made by a corporation to its shareholder (whether in case or property, and whether made before or during a winding up) with respect to their equity interests in the company. It does not include the distributions made in complete liquidation of the company of capital that was originally paid directly into the company in connection with the issuance of equity interests. The following income are termed as dividend incomes:
a. Cash dividend
b. The distribution of profits in case of voluntary winding up
c. The issue of debentures without any payment

Dividends exempted from tax
A. Dividends from outside The Gambia or from non-resident companies
B. Dividends received by a company which controls more than 12 _ % of the voting power of the company paying the dividends

C. Dividends received by a resident insurance company from its investment income of the life insurance fund.
Dividend payments are taxable on the recipient during the transaction, transfer or any amount of money credited to the account of the recipient. The payment of withholding dividend tax from a resident company or a resident partnership-paying dividend to a resident individual is charged at the rate of 15% percent from the gross amount of the dividend received or paid to the recipient (s).

The withholding tax of 15% on dividend is considered as the final tax. NOTE: Dividend Withholding Tax (DWT) deducted in a year of assessment can be offset against a shareholders income tax liability for the tax year in question. If the DWT exceeds the individual’s tax liability a refund can be obtained for tax over-paid. In this regard, some dividends are exempted from tax.

The allowable dividend expenses for deductions are:
1. Interest paid on deposits
2. Bonus and dividend paid by Co-operative societies, institutions to its staffs and
3. Dividends paid by building societies
The DWT allows tax filing and reporting of any withheld dividend tax payment made on a company’s share to its shareholders. This is demanding in which the DWT withheld must be paid to the Commissioner General, through the Commissioner of Domestic Taxes by the 15th Day of the following month.

In this a return is to be submitted, indicating the detailed information on the tax payments made to the list of the shareholders. This is used in ascertaining the income received and the tax levied.
3. Interests – is generally defined as any amount paid for the use of money. It includes:
a. Interest payable in any manner in respect of any loan deposit, debt, claim or other right or obligation.
b. Any premium or discount by way of interest.
c. Any commitment or service fee paid in respect of any loan or credit.
d. Any discount upon final redemption of bond, loan, obligation etc.
In the Gambia, the following interests are exempted from tax and these are:
a. Interest derived by a resident individual from savings at The Gambia Post Office is exempt from Income tax.
b. Interest payable on loan charged on the public revenue of The Gambia is exempt from tax to the extent specified by the President in a notice published in the Gazette.

Regarding payment of interests as outlined in section 91 (1) of the Income & Sales Tax Act. ‘ If a resident company or resident partnership; a permanent establishment in the Gambia of a non- resident company or non-resident partnership pays interests to a resident person, he/she shall withhold tax from the gross amount of the interest at the rate of 15%. This is not applicable to an interest paid to a financial institution or interest exempt from income tax.

The tax withheld from interest income is a final tax charged on the income received/or paid. To this, the income shall not be included in the gross income in computing the chargeable income of the person who derives it for any tax year, the income shall not be reduced by any loss, neither reduced by any tax credit, nor the tax withheld refunded and no deductions are allowable for any expenditure incurred in deriving the income. As a result, an interest from a tax perspective is an accruing income that is generated through an income generating activity.

4. Consultancy fees: Income derived from consultancy works are taxable under the withholding tax regime and at 15 % on the gross amount of money received/paid.

5. Contracts/sub-contracts (Section 89 (3)): A person, who retains the service of a Contractor/sub contractor to carry out work, or supply labour or materials for carrying out the work, shall withhold tax at the rate of 10% percent of gross fees or other payments made to the contractor/sub-contractor in respect of the services.

However, the tax that is withheld is not a final tax on the income in respect of which the tax has been withheld. In other words, the person from whom tax has been withheld can claim the full amount in his/her final return of income at the end of the tax year of income.

Methods of withholding tax computation 
The computation of withholding tax is assessed on the gross amount of the money received by the payee. This is done based on the tax band/bracket the individual’s assessable income falls on.

Computation of income from employment income
The followings are to be confirmed in the computation of income tax derived from employment income in The Gambia:
1. Ascertaining gross income from all sources
2. Deducting from gross income such amounts that may be allowable or such income that may not be taxable
3. Ascertaining net income
4. Calculating gross tax using tax rates as applicable to the particular year of income
5. Deducting from gross tax such relief that may be allowable
6. Ascertaining net income tax for the year
7. In case of employed persons whose tax is deducted at source by way of PAYE, the amount of tax already deducted should be subtracted from the net income tax. The balance if any will be the amount still payable at the date of assessment.

Procedural methods in accounting withholding tax the required time to account for withheld tax shall either be at the earlier of:
a. the time the amount is credited to the account of the recipient; or
b. the time the amount is actually paid
Once these are confirmed, tax payments take precedence and the payers are also expected by law to remit the tax (es) withheld from payees income to the Tax Office on or before the prescribed and due time for payment.

Requirements of withholding tax
a. Register your business entity with the Tax Department;
b. Compute your tax liability on a monthly basis or any time payment is effected;
c. Payers of income are obliged by law to withhold taxes at source from payees assessable income of the personal income tax;
d. Deduct and withhold tax from payments subjects to withholding tax;
e. Submit a monthly form indicating the name of employees under your payroll, their TINs and their monthly earned incomes;
f. Remit taxes withheld to the tax department;
g. File tax returns on a monthly, quarterly and yearly basis.

To this, the following institutions are required to file withholding tax returns
- Public Enterprises (PEs)
- Banks and non-financial institutions
- Government institutions
- Casinos, Gaming and Pool- Betting Establishments

Re-claiming withholding tax
Can withholding tax paid in the UK by a Resident Gambian be re-claimed in The Gambia?. Yes, of course withholding tax can be reclaimed by any individual or group of individuals, supposedly there s a Double Taxation Agreement between the country in which the income is paid and the country in which the recipient is a resident. Interestingly, there is a DTA between UK and The Gambia government.

Withholding tax as a final tax withholding tax becomes a final tax in the event of the following:
a. Withholding tax on qualifying interest: So, what is a qualifying Interest? A qualifying interest refers to
b. Withholding tax on qualifying dividends: What do we mean with qualifying dividends?

Is it statutory for payers to provide the detailed information of any withheld taxes to the Tax Office? Of course, yes, it is a statutory requirement for payers to file-in the F26 Forms and indicate detailed Tax information of any effected payments of income made and taxes deducted from payees or recipients of income payments.

Therefore, payers are obliged to provide Withholding Tax statements within two (2) months after the end of the tax year in the prescribed form to the Commissioner General:
a. The name and address of each person to whom payments has been made;
b. The total amount of payments made to the person;
c. The type of payment made to the person, and
d. The amount of withheld tax deducted from the payees income and paid to the Tax Office.

Moreover, for the annual submission of Withholding Tax Statements, Payers or Withholding Agents are required to furnish statements of deducted and paid withholding taxes on a monthly, quarterly or six monthly bases due to The Gambia’s application and adoption of the Self-Assessment Tax regime.

Non-compliance with the legislations on withholding tax computations and payments is a revenue offence for which defaulters are to be dealt with according to the gravity of the committed offences. Therefore, withholding agents or payers are required by law to deduct and remit the taxes withheld to the tax office. The only way to escape the penalties and interest charges on tax offences is to be tax compliance. Note: there is no deduction of withholding tax in case of any income exempted from income tax in The Gambia.

Dear readers, this is just the tip of an iceberg on the theories of the subject being discussed today, so watch out for more starling revelations on the practical aspects of withholding tax computation in our next week’s edition. Until then, have a wonderful reading on Tax Wise in enriching your tax knowledge with Dr. Tax.

Once again, I crave for your comments, questions and concerns in order to attend to your taxation needs as an employee, sole proprietor, trust, society, partnership or company doing business in The Gambia, so that you are ‘au fait’ of The Gambia’s tax system.

The Author is the Senior Compliance Strategy Officer of the Gambia Revenue Authority