2% withholding tax not applicable to “just about anything” – GRA

The Guyana Revenue Authority (GRA) on Thursday denied claims that the two per cent withholding tax on contractors’ earnings (individuals/companies) applies to “just about anything”.

The revenue body, making reference to section 39 (13) of the Income Tax Act, Chapter 81:01, stated: “Payments disbursed to contractors in excess of $500,000 for a contract shall be subject to a withholding tax at a rate of two per cent on every payment.”

The GRA explained that “contractors”, as defined in Subsection 14 of the Income Tax Act Chapter 81:01, referred to a person contracting with or employed directly by an owner or an agent of the owner to supply services, goods, materials, equipment, or personnel in the furtherance of the services.

It said the law which applies to payments to resident businesses, individuals and companies with written “contractual arrangements” is not applicable to regular day-to-day commercial activities involving the trade in goods and services. Consequently, the GRA said payments such as those made by rice millers to rice farmers for paddy were not subject to the two per cent withholding tax.

“The two per cent withholding tax … must be remitted to the Guyana Revenue Authority, and will be treated as an advance payment towards the quarterly taxes payable by the taxpayer (the person from whose payment the two per cent was deducted). This results in the reduction of the quarterly payment of the individual and companies from whom the tax was withheld. Receipts will be issued by the Guyana Revenue Authority as proof that this payment was made on their behalf,” the financial unit explained.

According to the GRA, withholding tax is also applicable to non-resident disbursements and payments, noting that rates range from 10 per cent to 20 per cent depending on the country of residence.

On Tuesday, Guyana Times reported that the Revenue Authority was demanding that individuals and companies receiving more than $500,000 for the supply of services, goods, materials, equipment or personnel in the furtherance of services deduct a two per cent withholding tax and remit same to the tax authority. Guyana Times was told that the tax would be given as a tax credit when the individual or company filed the requisite income/corporate tax return.

This newspaper was told that while contractors typically meant those engaged in construction and similar activities, this new imposition seemed to expand on that definition to include just about anyone doing just about anything. The two per cent withheld for all contractors must be remitted to the GRA on a monthly basis or within 30 days of making the payment to the contractor.

This publication understands that some Ministries have already begun deducting the two per cent withholding tax on monies paid to suppliers.

According to one businessman, if that is the intended application, then individuals and companies will have to follow suit and deduct two per cent on all types of bills, including electricity, fuel purchases, salaries and wages, and purchases of raw materials once the amount is over $500,000 and if the supplier is a resident individual or corporation. “If this is what was intended, it will be a tax most bizarre and will spell further doom for entrepreneurs and businesses in Guyana,” one businessman expressed to this publication.

The GRA website stated that where any deduction and remittance have not been made by the person liable, the person not making the deduction of withholding tax will be held liable for the amounts outstanding.

These new measures came into effect February 1, 2017. However, this is not applicable to foreign trade companies, but rather serves as a discriminatory measure to local businesses.