Govt. directs WHT, PAYE deducted after January to be repaid

The Government has directed a refund of Withholding Tax (WHT) and Pay As You Earn (PAYE) deducted from January this year to respective persons. 

The move was announced by the Inland Revenue Department (IRD) yesterday, causing fresh debate within tax circles and the private sector. 

As instructed by the Ministry of Finance on 31 January 2020, pending formal amendment to Inland Revenue Act No. 24 of 2017, WHT on any payments (including interest, dividends, rent, etc.) made to any resident and PAYE on any employment receipts to any resident or non-resident is removed with effect from 1 January 2020. 

Accordingly, the IRD said withholding agents, including employers, are instructed not to deduct any WHT or PAYE on payments to be made on or after 1 January 2020 for these persons.

Any WHT or PAYE already deducted after 1 January 2020 on the above payments should be paid back to the respective persons (employees, deposit-holders or any other individuals).

However, the IRD said WHT on following payments would continue to apply: Payments made to a resident; at 14% WHT on the amounts paid as winnings from a lottery, reward, betting or gambling and at 2.5% WHT on the sale of any gem at an auction conducted by the National Gem and Jewellery Authority. This law is also applicable to payments made to non-residents under sections 84 and 85.

Tax experts were divided in their opinion subject to further clarity. 

One said the withdrawal and deductions to be repaid were aimed at providing immediate relief to those who came under PAYE, a group estimated to number around 600,000. The WHT relief will also encompass thousands of more people, especially those dependent on interest income. 

However, another said the latest move was more to do with making tax more revenue efficient. 

“Under the previous arrangement, there was greater benefit, especially in the case of someone qualifying for both PAYE and WHT relief on interest income. With the latest change, there is likely to be a maximum cap of Rs. 750,000 relief for three months – from January to March 2020 or Rs. 250,000 per month,” he said.

Others said a proper assessment cannot be made until the IRD clarified various interpretations following yesterday’s announcement.  

Earlier the tax regime for January to March 2020 was PAYE tax would be calculated estimating the employment income (including lump sum payments) for the entire three months and dividing it equally amongst the three months. From April 2020 onwards, PAYE tax is to be abolished and individuals are liable to pay tax on employment income on a self-assessment basis at specified rates. As per the new move announced yesterday, self-assessment will start from January 2020 according to tax analysts.

WHT on interest income will be zero up to Rs. 250,000 and the balance taxed at 5%.