Hello, I’m back with Tax Bagnoms. This is the 10-Minute Tax series. We are starting with a tax that leaves many people confused and curious: withholding income tax.
What is withholding income tax?
What is withholding income tax, commonly called withholding tax? Let’s start with the basic principle. Income tax for the year is calculated at year-end as the total tax due for the whole year. Once that amount is calculated, two other tax payments are deducted: half-year tax, based on the accounting period or year depending on the type of income—personal income tax for individuals or corporate income tax for companies—and withholding tax. When we file at year-end, the return shows whether our advance payments, including half-year tax and withholding tax, were greater than the tax actually due. If so, we may be entitled to a refund. That is the basic idea. Why does withholding tax exist? It sends tax to the government in advance. The payer of income is responsible for withholding it.
The principle of withholding tax
Withholding tax is an advance payment to the government. The payer must deduct tax from the recipient's income and remit it to the Revenue Department. The system is intended to provide the government with a steady tax revenue stream and reduce the tax burden on people with income at year-end.
Elements of withholding income tax
Withholding income tax has three main elements: the payer, the recipient, and the type of income.
Example of tax withholding
To understand the basic principle, consider this example: Company A pays building rent to Mr. A.
What is withholding income tax?
Withholding income tax is an advance payment to the government. The payer must deduct tax from the recipient's income and remit it to the Revenue Department. The system is intended to provide the government with a steady tax revenue stream and reduce the tax burden on people with income at year-end.
Meaning and principle
Withholding tax is a system that requires a payer to deduct tax from a recipient's income when making a payment and remit the withheld amount to the Revenue Department within the period set by law. The key idea is to collect tax in advance so the government receives a steady flow of tax revenue and taxpayers do not face one large payment at year-end.
Why do we have withholding tax?
Withholding tax has several important purposes:
- Improve public-sector cash flow: It gives the government a steady stream of tax revenue.
- Reduce the taxpayer's burden: It helps spread out the cost of paying a large tax bill at once.
- Prevent tax evasion: It makes tax collection more effective.
Benefits of withholding tax
The main benefits of withholding tax include:
- For the government: It provides regular tax revenue and helps reduce collection problems.
- For taxpayers: It reduces the amount due at year-end, and taxpayers may receive a refund if too much was withheld.
Elements of withholding income tax
Withholding income tax has the following important elements:
The payer's responsibilities
The payer's main responsibilities are:
- Check: Check whether the recipient has a tax obligation.
- Calculate: Calculate the tax to withhold based on the income type and the rate set by law.
- Withhold: Deduct withholding tax from the income paid to the recipient.
- Remit: Send the withheld tax to the Revenue Department within the required period.
- Issue a certificate: Issue a withholding tax certificate (50 Bis) to the recipient.
The recipient's responsibilities
The recipient's main responsibilities are:
- Receive the certificate: Receive the withholding tax certificate (50 Bis) from the payer.
- Keep it: Keep the certificate (50 Bis) as evidence.
- Include it in the calculation: Use the certificate (50 Bis) when calculating annual income tax.
- File a return: File an individual income tax return (P.N.D. 90 or P.N.D. 91) with the 50 Bis certificate attached.
Important document
The important document related to withholding tax is the withholding tax certificate, also called a 50 Bis. It is evidence of withholding tax that the payer must issue to the recipient.
Calculating tax
Withholding tax calculations depend on the income type, the applicable tax rate, and the relevant laws.
Example of tax withholding
To understand how withholding works, consider this example: Company A pays building rent to Mr. A.
Case: Company A pays building rent to Mr. A.
Company A, the payer, pays building rent to Mr. A, the recipient.
Identify the type of income
Building rent is classified as type 5 income under the Revenue Code.
Applicable law
Withholding tax on building rent is governed by Section 50 bis of the Revenue Code.
Calculate the tax
Company A must withhold 5% of the rent paid to Mr. A. For example, if the monthly rent is 10,000 baht, Company A must withhold 500 baht (10,000 × 5%) and remit it to the Revenue Department.
What this means for Mr. A
Company A gives Mr. A a withholding tax certificate (50 Bis) showing the amount withheld. Mr. A must include the certificate when calculating annual income tax and may receive a refund if the amount withheld exceeds his actual tax liability.
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