Remuneration/Withholding tax: How to avoid a forced adjustment

Although withholding tax on fees and other remuneration paid to third parties and on VAT was introduced by the Finance Act two years ago, many SMEs are still unaware of the terms and implications. Some entities, for example, do not deduct the mandatory 10% from amounts allocated to others.

As a result, they continue to pay their service providers their full fees. It is then up to the service providers to file their tax returns for the income received at the end of the financial year and pay the tax due. However, under the law, in the event of an audit, the company risks being reassessed and facing heavy financial penalties. « In the event of automatic taxation, the amount of the surcharge is 20% for failure to file a return, incomplete or insufficient return, accompanied by penalties for late payment, i.e., a 20% recovery penalty for failure to pay the VAT amount and a 5% surcharge for the first month of delay and 0.5% per month or fraction of a month of additional delay. That’s 6% per year! Thus, a distinction must be made between two types of penalties: the first type concerns failure to file a return or filing an incomplete return issued by the Government. The second type of penalty concerns penalties for late payment of VAT, also issued by the Government ”, explains Mohamed Chorfi, chartered accountant and trainer.

However, in the event of a tax audit, the 20% surcharge is increased to 30%, not to mention the 20% collection penalty, plus 5% for the first month of delay and 0.5% for each additional month or fraction of a month of delay.

The beneficiary of remuneration paid by a paying institution is expected to have filed their tax return and paid the taxes due. However, the paying institution remains liable to the tax authorities for the amount of withholding tax not paid and any resulting financial penalties. This means that even if the taxpayer has paid income tax on remuneration that has not been subject to withholding tax, the entity that paid these amounts is accountable to the tax authorities.

Some service providers advise their clients by stating the gross amount on their invoices so that they can deduct the statutory tax advance. The Directorate General of Taxes still has plenty of time to carry out tax audits of the companies concerned, as the measures relating to withholding tax were only introduced in 2023. So the statute of limitations is still a long way off.

Hassan EL ARIF