Withholding tax on services takes effect Sept 1
The new withholding tax on specified services will now take effect on September 1, the finance ministry said this week.
The tax, which the ministry says targets non-compliant taxpayers as well as those outside of the tax net, will impose a three per cent levy on services provided by professionals and other groups.
The tax was to be implemented in May, then June, but was delayed even further as businesses sought clarification on its structure and how the tax would be computed.
Payers of the tax will be able to reclaim it as a tax credit, and any excess credit may either be claimed as a refund or used to offset a future assessment.
"It is expected that this tax measure will result in a broadening of the tax base, increased compliance, improved revenue collection and ultimately lower income tax rates, which is a commitment under the Government's broader tax reform," the Ministry of Finance said in a statement.
Essentially, the Government will be using designated 'Tax Withholding Agents', or TWAs, to collect the tax from service providers with whom they do business. The tax will apply to invoices above $50,000.
In the first phase of implementation, the affected services will include accounting; auditing; catering; consultancy, that is, a professional service by persons who are not acting in the capacity of an employee; decorating; engineering - architectural, electrical, mechanical and structural; entertainment; information technology; janitorial; laundry; landscaping; legal; management; repairs and maintenance - to buildings and motor vehicles; the rental or leasing of motor vehicles or equipment; transportation of people and goods; and haulage of goods or tours.
It may also apply to any other service specified by the minister of finance and gazetted.
The taxes for these services may be withheld by TWAs spanning a number of sectors, inclusive of regulated financial institutions, tourism operators, utility and cable companies with annual gross revenue exceeding $500 million, statutory bodies/authorities, ministries, executive agencies or any agency or department of Government.
The finance ministry has made no projections on how much taxes it expects the new levy to unearth, saying its main intent is to broaden the tax base.