Have You Paid Tax On Your Rent?

By Stephen Kwabena Effah & Julia Gursztyn
Friday, 28 July 2006 (Page 3)

Do you know it is mandatory for every tenant to withhold a tax of 10 per cent every month from the gross rent to be paid their landlords?

Well, if you do not know, the Internal Revenue Regulations 2001 requires every individual to deduct 10 per cent from his rent to be paid to the Internal Revenue Services (IRS).

A Chief Inspector of Taxes of IRS, Kwasi Oppong-Damoah, who said this at a seminar on withholding tax and rent tax in Accra on Wednesday, explained that if after deducting the 10 per cent, the individual fails to pay to the IRS, he or she will be surcharged.

The seminar was organised by the IRS to educate and sensitize finance officers who handle withholding tax so as to obtain the needed cooperation and appropriate response and also to explain to house owners what is required of them in terms of tax payment.

Mr.Oppong-Damoah said if the amount is not paid to IRS within three months, the individual will pay a penalty of 20 per cent and after three months it will attract a 30 per cent penalty.

The withholding tax of 10 per cent may be taken from the gross rent, adding, "the tax so withheld is final and the rent shall not be included in ascertaining the individual’s income after withholding the tax," he explained.

He indicated that companies that construct residential and commercial premises for sale or for letting have exemption for a period of five years from when the operations commenced.

However, the exemption is available only to companies and not individuals in the real estate business.

Mr.Oppong-Damoah observed that even though the laws have been in existence since 2001,a lot of people are not complying with them.

He therefore urged individuals and companies to comply with the law to avoid being surcharged.

The Commissioner of IRS, Maj. Daniel S.Ablorh-Quarcoo (Rtd), said that excessive dependence on external resources to push the country’s development agenda can put brakes on its efforts whenever unfavourable developments occur in the donor countries.

He noted that withholding taxes constitute a big chunk of IRS collection but quite a substantial portion of taxes deducted in accordance with the withholding tax law have not found its way to the consolidated fund.

He attributed this to negligence and attitude of financial officers and individuals, adding that returns on rent tax have not been encouraging in spite of the boom in the real estate sector countrywide.

Maj.Ablorh-Quarcoo therefore urged finance officers of various organizations and house owners to live up to their responsibilites to avoid leakages in rent tax and withholding tax payments.

"If government will be able to deliver the goods and meet our many expectations in the form of the provision of adequate infrastructure and social amenities, then it behoves on us as good citizens, both corporate and individual, to perform our part of the contract," he said.