Withholding tax on commission and brokerage fees: The pertinent issues
Correspondent | Friday September 19, 2014 14:24
This tax was brought into force through the Income Tax Amendment Act No. 8 of 2011. We discuss below the pertinent issues to assist taxpayers with their compliance obligations. Typically, insurance brokers, debt collectors, estate agents and marketing agents are some of the persons who usually earn commission or brokerage fees. The WHT should be deducted from the VAT-exclusive commission or brokerage fees due to a service provider, where applicable. For example, where a person is to pay commission or brokerage fees of say P 224, 000 inclusive of VAT, the WHT would be determined on the VAT- exclusive amount of P 200, 000.
No WHT is deductible if the annual commission or brokerage fee is less than P 36, 000. As payments for commission and brokerage fees are usually done on a monthly basis, it seems, based on my observations, that there is a practice of deducting the WHT only on the amount in excess of P 3, 000. It should be noted that once the amount is P 3, 000 or more, the 10% WHT is deductible on the full amount.
Some insurance companies have arrangements whereby brokers collect full insurance premiums from clients and then pass on the net premium to the insurer after deducting commission. Under normal circumstances, the insurer would pay the commission to the insurance broker, deducting the WHT and remitting it to BURS. However, under the above-described scenario, it is the broker who makes the payment to the insurer as he/she would have collected the premiums from the insured. The question that then arises is who should deduct and pay the WHT to BURS? It should be noted that the liability to deduct the commission or brokerage fees, irrespective of any industry arrangement, lies with the payer, i.e. insurer in this case. As such, the broker should, in addition to passing the net premium, also pass the amount of WHT to the insurer, who should then remit the tax to BURS. There is an option for brokers to obtain directives from BURS advising the insurer not to withhold tax in such circumstances. BURS issues such directives on the merits of each case.
Some employers have arrangements where salaried employees are also paid a commission when they sell certain products/services to clients. Such commission or brokerage fee forms part of their remuneration, and as a result, subject to PAYE.
In such instances, there will not be any need for the employer to deduct WHT.
A payer of the WHT is required to issue a WHT certificate to the payee, currently the Form ITW 9, as proof of withholding. The WHT certificate, which should be stamped by BURS, can be used by the payee (assuming he/she is a Botswana tax resident) to claim a credit against his/her final income tax liability. In other words, the WHT is an advance tax, i.e. it is paid in advance to BURS but is claimable by the payee at year-end.
As with PAYE and Other-WHT, the tax so deducted is required to be remitted to BURS by the 15th day of the month following that in which payment of the commission/brokerage fee is made. WHT for a payment made in August 2014 would be due to BURS not later than 15 September 2014. BURS charges compound monthly interest of 1.5% for late payments of the WHT.
It is important to note that, legally, WHT is triggered by payment and not accrual of the commission/brokerage fee. This means that WHT should be accounted for when the commission/brokerage fee is paid, regardless of the provisions of the agreement giving rise to the amount. Where a person who is required to pay monthly commission/brokerage fee fails to do so for one reason or the other, he is required to pay the WHT by the 15th of the month following that in which he actually pays the commission/brokerage fees.
Where payers of commission/brokerage fees may not have complied with the withholding requirements tax, they are required to rectify the situation. The Tax Act requires such persons to pay the full WHT due to BURS. It also provides that they can recover the tax paid from the payee. We suggest, in such cases, that sufficient communication between the parties involved takes place before the recovery of the tax is done. Interest charged for the late remittance of the WHT is borne by the payer. Such interest cannot be recovered from the payee because the payer is penalized for failure to comply with his/her withholding obligations under the Tax Act.
Payers of commission/brokerage fees are required to comply with the tax and seek guidance, where not certain.
Comments on this article can be forwarded to taxservices@kpmg.bw
Disclaimer: The information contained in this article is of a general nature and is not meant to address particular circumstances of any person. KPMG does not accept legal liability for any loss occasioned through the reliance of information contained in this article.