What Is Withholding Tax?
What is withholding tax?
Withholding tax is a way for the government to collect revenue at source rather than waiting for the end of the financial year. Essentially, it is a deduction made from the payments that are made to those suppliers that are providing a particular service. This way, the government instantly gets its revenue and the supplier can eventually add this amount to its final tax liability.
What happens exactly is when the client of a particular service supplier goes to pay them, the gross amount is taxed at the spot, depending on the rate, and filed as a withholding tax. Thus, the supplier receives a net amount and the taxed amount is credited to their final tax liability. It is a fairly simple and easy way for the government to generate easy revenue.
How is withholding tax calculated?
The calculation of withholding tax is not too difficult to understand. What you need to know to understand the flow of the tax collection is that the end supplier of service doesn’t get the gross payment for its services as its client usually pays off the Corporate income tax in its place. Thus, what the service supplier receives is the net or gross amount and the amount withheld is eventually accommodated in the final tax liability.
Two features are required for the deduction of the withholding tax. This includes a service supplier having expenses greater than 1000 Baht and expenses less than 1000 Baht for which a long-term contract is in place. On a side note, keep in mind that there are no deductions made for payments to non-taxpayers such as the government.
The different tax rates present
You will find that there are different tax rates for different services. This means that the withholding tax rate for rent, parking, transportation, and other services will not be the same. The rates mainly range from 1% to 10%, depending on the service. The highest tax rate currently is for dividends that go up to almost 10%.
What is the submission procedure?
Organizations that are withholding taxes for other service suppliers are required to submit the relevant amount with the Revenue Department within the first 7 days of the following month in which the payment is made. For instance, if a client paid a service company in July, then it will have to make sure to file a withholding tax return and submit the withheld tax within the first 7 days of August.
If the withholding tax isn’t submitted on time, there are fines for a late submission. For the first 7 days after the deadline, the fine will be for about 100 Baht. If this exceeds the seven-day timeline, then the fine will be for 200 Baht. Other than that, there’s an additional penalty of 1.5% on the outstanding amount that is calculated monthly.