NO MORE TAX ON RENT AND COMMISSION BELOW P4K

The Minister of Finance and Economic Development, Dr Thapeko Matsheka, issued an Income Tax Amendment Bill 2021 on 26 March 2021 which seeks to make various changes to the Income Tax Act. One of those changes is to increase the threshold deduction of withholding tax (WHT) on rent and commission from the current P3 000 to P4 000 per month.

NO MORE TAX ON RENT AND COMMISSION BELOW P4K

The Minister of Finance and Economic Development, Dr Thapeko Matsheka, issued an Income Tax Amendment Bill 2021 on 26 March 2021 which seeks to make various changes to the Income Tax Act. One of those changes is to increase the threshold deduction of withholding tax (WHT) on rent and commission from the current P3 000 to P4 000 per month.

The said bill is expected to become law effective 1 July 2021 if approved by Parliament. If you were not aware of these taxes, let Yours Truly give you a concise lesson on them today. Throughout this article, words importing the masculine shall be deemed to include the feminine.

Tax on rent and commission

Effective 13 May 2011, the Income Tax Act was amended to require that any payer of rent for use of land and/or buildings for business must deduct a 5 percent withholding tax (WHT) from rent of at least P3 000 per month. What that means is that businesses must deduct the said tax and pay it to BURS on a monthly basis. Failure to do so results in the tenant being personally liable for the tax over and above annual interest of around 19.56 percent. Further, any payers of commission of at least P3 000 per month are also required to deduct and pay the WHT to BURS on a monthly basis.

Threshold now P4000

The bill seeks to increase the threshold used to deduct the said two WHTs from the current P3 000 to P4 000 per month. What that means is that businesses will no longer have to deduct the WHTs on amounts which are less than P4 000 per month. However, should the rent or commission exceed P4 000 per month, the tax is deducted from the full rent or commission without reducing the amount by the P4 000. This is so as the P4 000 is not an exemption threshold similar to the P3 000 for PAYE but is a deduction threshold. This technically means that a rental payer who is billed P10 000 by their landlord must deduct P500 as WHT on rent as the amount exceeds P4 000 per month. In like manner, a payer of commission of P10 000 must deduct tax at 10 percent, which amounts to P1 000.

Don’t twist it

It often happens that whenever a proposed tax change is announced or proposed through the Government Gazette, some taxpayers take it that the change has already been effected. But this cannot be so because any change to tax laws must be effectuated through a law and a bill is merely an expression of interest to amend the law. The bill turns into a law when passed by Parliament and has been assented to by the President. Therefore, as you read this article, know that what Yours Truly told you it is an intention that will only become effective on 1 July 2021 if passed by Parliament and ssented to by the President.

In addition, it is critical to note that the law does not put tax collection burdens on individuals not in business as that is tantamount to inviting people to rob state funds. Individuals are, by nature, the most complicated and difficult tax segment of taxpayers and no legislature will ever require that they deduct a WHT and remit it because the default rates would go high. Individuals are referred to as the Hard-To-Tax (HTTs). That doesn’t sound good to you because I know you pay your taxes without compulsion, does it? But you know there are instances where you didn’t pay tax, right? Of course, I got you!

Well, folks, I hope that was insightful. As Yours Truly says goodbye, remember to pay to Caesar what belongs to Caesar. If you want to join our Tax Whatsapp group or know about our nine Tax e-books, send me a text on the cell number below.