Impact of Withholding Tax (WHT) on Tuition industry.

As per the Section 85 of the Inland Revenue Act No.24 of 2017, Withholding Tax should be deducted from payment for  teaching , lecturing ,examining ,invigilating or supervising an examination   made to any resident individual who is not an employee at 5% on amounts exceeding Rs.50,000 per month.

Accordingly, educational institutes which are conducting tuition classes should deduct withholding tax from their teachers at the time of making monthly payments for their lecture fees upon exceeding Rs.50,000 per month. This mechanism is applicable to the lecturers who  are working on hourly basis or agreed basis to get a monthly fee. Mostly professional classes are conducted on this method.

Ex: If a teacher is entitled Rs.2,000 per hour and his total number of hours worked for a month is 30, his monthly payment would be Rs.60,000. Accordingly when an institute is making the payment, withholding tax of 5% should be deducted from his fee and should be remitted to the Department of Inland Revenue. The lecturer will receive only 95% , which is Rs.57,000.

Impact on non-compliance will be as follows.

• If the relevant withholding tax is not deducted, the withholding agent is required to pay the relevant withholding amount to the Department of Inland Revenue.
• If the relevant withholding tax has not been paid to the Department of Inland Revenue, withholding agent is not permitted to deduct the relevant service fee, in arriving liable income for tax purposes.
• If the tax is not paid by the due date, withholding agent is liable for an interest equal to 1.5% per month or part a month.
• If a person who fails to pay all or part of a tax  due for a tax period within fourteen days of the due date, shall be liable to a penalty equal to twenty per cent of the amount of tax due but not paid.