Withholding Tax: Deduct, Remit, Recover

Withholding tax is tax you deduct from what you pay a supplier and pay over to the tax authority yourself. In AWRA it lives at Accounting → Journal, under Withholding Tax in the accounting sidebar. Setup has two parts. Under Rates, press Add rate and give it a name, a percentage and a kind — income tax or VAT — and keep it active. Then open each supplier who should be deducted from, under Procurement → Suppliers, and in the Tax section enter their tax PIN and choose their default withholding rate; only active rates are offered. Editing a rate later changes it for new bills only: a bill already captured keeps the rate it was captured at, so last month’s figures do not move under you.

A new supplier bill starts with that supplier’s default rate, and you can choose a different rate, or none, on that bill. The amount withheld is the rate times the bill’s taxable value — its subtotal before VAT — for both income-tax and VAT withholding. The bill’s balance due is net of the withholding, because that part is owed to the tax authority, not the supplier, so the bill page, payment runs and every pay screen pay the supplier the net. Withholding is set on a bill; a payment made straight against a purchase order with no bill has no taxable value to withhold on, so capture the bill first when a supplier should be deducted from.

In practice: a Nairobi consultancy engages an IT contractor whose supplier record carries their PIN and a default 5% income-tax withholding rate. The contractor invoices KES 100,000 plus 16% VAT, a total of KES 116,000. The bill captures the 5% default: KES 5,000 withheld on the KES 100,000 subtotal, not on the VAT-inclusive total. The bill’s balance due is KES 111,000, and that is what the payment run pays the contractor. A different supplier, a registered agent for VAT withholding purposes, is set up with a 2% VAT withholding rate; on a KES 50,000 subtotal that bill withholds KES 1,000.

Capturing a bill with a withholding rate does not post the withholding. The obligation arises when the supplier is paid, so AWRA books it in step with what settles the bill: each confirmed payment, and each debit note applied to the bill, books its share of the withholding — the withholding times what was settled, divided by the bill’s net — dated when that settlement happened. Each share posts Dr accounts payable, Cr withholding tax payable. When the bill is fully settled the last share makes the total exact, so rounding never leaves a few cents behind.

Two consequences are worth learning by heart. First, a bill paid half in one month and half in the next reports half its withholding in each month, by the date the money moved, not the bill date. An unpaid bill shows the deduction on the bill itself but is in no month’s register yet. Second, a payment that turns out not to have gone through — a confirmed payment later reversed — un-books the share it booked, so the register never carries tax on money that was never paid. The register only ever reads booked, unreversed shares.

In practice: the KES 111,000 net bill from the previous lesson, with KES 5,000 withheld, is paid KES 55,500 on 28 October and KES 55,500 on 12 November. On 28 October AWRA books KES 2,500 (5,000 × 55,500 ÷ 111,000) to withholding tax payable; on 12 November it books the remaining KES 2,500. October’s register shows KES 2,500 for this contractor and November’s shows KES 2,500. Had the October payment been a Paystack transfer that Paystack later reported as reversed, the reversal would have un-booked October’s KES 2,500 along with the payment itself.

The Withholding Tax screen shows one month at a time: pick it under Month and press Show. Deducted from suppliers lists every share booked in the month — supplier, PIN, bill and their invoice number, taxable value, rate, amount withheld and the date. If any supplier in the month has no tax PIN, the screen names them with links to their records, because the return will reject those rows. Totals are kept separately for income tax and VAT, alongside what has been remitted and what customers withheld from you.

Export for the return downloads a CSV, one row per booked share: supplier PIN, supplier, invoice number, invoice date, taxable value, rate, tax withheld, kind and the date deducted. It is a working file to prepare the return from, not a file in the tax authority’s own template, and AWRA does not file the return for you. Certificates gives one PDF per supplier for the month, listing what was deducted from them bill by bill. Your organization’s PIN on the certificate comes from the employer tax PIN in your HR settings, and otherwise from the PIN on your eTIMS connection. Viewing the register, the export and the certificates needs the permission to view withholding tax.

In practice: at the start of November the accountant of a Nairobi construction firm opens October. The register lists 23 shares across 17 suppliers: KES 184,600 of income-tax withholding and KES 38,200 of VAT withholding. A banner names two subcontractors with no PIN; she opens each supplier record, adds the PIN from their invoices, and the banner clears. She exports the CSV, uses it to prepare the return, and downloads certificates for the five subcontractors who asked for them — each certificate carrying the firm’s PIN from the HR settings and listing the bills deducted that month.

Under Remitted for the month, Still to remit is shown separately for income tax and VAT. Press Record remittance, choose the kind, and enter the amount, the date paid, the payment reference and the account it was paid from — Bank unless you choose another. Posting it books Dr withholding tax payable, Cr the account you paid from. A remittance above what was withheld and not yet remitted for that month and kind is refused, and two people cannot both slip a remittance past that cap at the same moment, because AWRA handles one remittance per month and kind at a time.

A remittance recorded in error can be reversed from the list: its journal is reversed and the month shows that amount as outstanding again. If a supplier payment is reversed after the month was remitted, its withholding share is un-booked and the month’s still-to-remit figure can go below zero — that is an over-remittance to carry against the next return, not an error. Recording and reversing remittances, and adding or editing rates, need the permission to manage withholding tax; admins hold both withholding permissions, and for any other role an admin adds them in the role’s permissions.

In practice: October shows KES 184,600 of income tax and KES 38,200 of VAT still to remit. The accountant pays the income tax on 18 November and records a remittance of KES 184,600, reference from the payment slip, from the Bank account. She then tries to record KES 40,000 of VAT by mistake and is refused, because only KES 38,200 is outstanding for October’s VAT; she corrects the figure to KES 38,200 and posts it. Still to remit for October is now zero for both kinds, and withholding tax payable has fallen by KES 222,800 against the bank.

Withholding runs the other way too. When a large customer — a government body or a corporate that is a withholding agent — pays your invoice short and sends a withholding certificate instead, the missing part is not a discount and not bad debt: it is tax paid on your behalf that you can claim. On the customer invoice, record a payment with the method Withheld by customer, the amount withheld, and the certificate number as the reference. It settles that part of the invoice like any payment, but to withholding tax recoverable instead of the bank, so the invoice closes and the tax sits where it can be claimed.

These payments appear under Withheld by customers on the register for the month of the payment’s own date, not the day it was keyed in. That gives you one place to reconcile the certificates in hand against what was recorded. Two boundaries keep the screen honest. Payroll PAYE on salaries belongs to Payroll, not here. And withholding on supplier bills and withholding by customers never net against each other on the screen: one is a liability you remit, the other an asset you claim.

In practice: a Nairobi IT firm invoices a county government KES 580,000 (KES 500,000 plus 16% VAT). The county pays KES 545,000 by bank and issues certificates for KES 25,000 of income-tax withholding (5% of the subtotal) and KES 10,000 of VAT withholding (2%). The accountant records the KES 545,000 bank payment, then one payment of KES 35,000 with the method Withheld by customer, citing the certificate numbers as the reference. The invoice closes at zero, KES 35,000 sits in withholding tax recoverable, and the month’s register shows it under Withheld by customers — a figure she can compare against the certificates before claiming them.