CHAPTER CONTENTS

 INTRODUCTION
 WITHHOLDING TAXES
 GENERAL PROVISIONS FOR WITHHOLDING
TAXES
INTRODUCTION
 Withholding tax: means a way of collecting tax at
source of a taxable income.
 This means that before income is paid to a
taxpayer, certain amount is deducted from the
gross amount and submitted to tax authority by
the person who is making the payment.
 In some circumstances, withholding tax becomes
final and therefore is both the way of colleting tax
and the form of tax
INTRODUCTION
 In case where withholding tax is final, the
gross amount of income received is excluded
from gross income of the tax payer and the tax
so withheld is not offset against the tax liability
 Where it is not final it is added back to the net
amount received, then gross amount included
in the gross income and withholding tax will be
offset against tax liability
WITHHOLDING TAXES
1. Payment of employment income (sec.156)
a) An employer must withhold tax from the employment
income of an employee who is not a domestic
assistant
2. Payments to resident contractors (sec.157)
a) A person who pays a resident contractor is
obliged to withhold tax at the rate of 5% of the
gross amount of the payment.
b) Exceptions to this rule (No withholding tax if:)
i) A payment is made by an individual for erection
or improvement of his private residence
WITHHOLDING TAXES
ii) Total payments under a contract for any
month are less than M3000. Payments are
evaluated separately for each contract.
iii) Payment is made to the complying
contractor . i.e. a contractor who has certificate
of exemption, which is valid for two years and
is issued by the commissioner of taxes
WITHHOLDING TAXES contd….
a) The obligation to withhold tax remains until
the contract is completed.
b) Withholding tax cannot be set-off against ;

 Installments
 Advance corporation tax
c) Withholding tax can only be set-off against
the contractor’s liability for the year of
assessment.
3. Payment to a non-resident contractor (Sec.108)
a) A person paying a non resident contractor
must withhold tax at the rate of 10% of the
gross payment.
 CONTRACTOR
In terms of the Income Tax Act 1993 (as amended), a
contractor is defined as a person who, under a contract, is:
1. – engaged in a business of leasing vehicles, plant or
equipment; or
2. – engaged in a business of providing construction,
transportation or any other services as prescribed by
the Income Tax Regulations 1994;

3. – engaged in a business where the primary purpose of

the contract is the performance of services, whether or
not goods are also provided under the contract.
A complying contractor is defined to be a resident
contractor who has been issued with a certificate of
exemption from withholding tax by the Commissioner
General.
WITHHOLDING TAXES contd……..
4. Interest payments (sec.158)
a) A resident person who pays interest to a resident of
Lesotho is obliged to withhold tax at the rate of 10% of
the gross amount of interest earned.
b) Interest exemption under sec. 27 must be taken into
account when withholding tax.
c) The withhold tax becomes final tax if interest has been
paid to/earned by a resident individual
d) Responsibility to withhold tax lies with a resident
person who is not an individual or a natural person
Note that the obligation to withhold tax is not confined
to interest paid by financial institutions, but also to
interest paid by a resident partnership, resident
company, the Lesotho Government, and local councils.
Withholding tax on interest paid to
exempt organisations
 Such withholding tax is a final tax and cannot be
reclaimed from LRA
WITHHOLDING TAXES contd……..
5. Payments from Superannuation fund (sec. 159)
 A trustee or fund manager of a complying
superannuation fund is liable to withhold tax at the
rate of 25% on any lump sum payment and periodic
payments made to a beneficiary.
 The exemption as per amendment should be taken
into consideration
WITHHOLDING TAXES
6. Payment by the liquidator (sec. 160)
a) A liquidator must withhold tax at the rate of
10% of the gross payment when making
payment to members of the company
b) Tax which has been withheld is not final tax
WITHHOLDING TAXES ON
INTERNATIONAL TRANSACTIONS
7. Withholding tax to non-residents (i.e. withholding
tax on international transactions) sec. 107
 25% withholding tax is payable on Lesotho source
dividend, interest, royalty, natural resource payment,
or management charge(passive income) paid to a
non-resident
 Tax withheld is final tax unless the non-resident
elects to be taxed by assessment (i.e. electing non-
resident)
WITHHOLDING TAXES ON INTERNATIONAL
TRANSACTIONS contd………
 10% withholding tax has to be made on the following
Lesotho source income paid to non-residents;
 For royalties relating to technology used for
manufacturing the withholding tax rate is 15%
 10% withholding tax rate will be applicable
on these passive income once there is a
double taxation agreement between Lesotho
and a foreign country
 The amount of tax so withheld is again final
tax unless the non-resident elects to be
taxed by assessment
WITHHOLDING TAXES ON INTERNATIONAL
TRANSACTIONS contd………..
 NB: no deductions are allowed for losses and expenses
incurred by no-resident in deriving service income
which is subject to withholding tax unless such non-
resident elects to be taxed by assessment.
WITHHOLDING TAXES ON
INTERNATIONAL TRANSACTIONS
Exceptions from withholding tax;
1. There is no withholding tax payable on Lesotho
source dividends paid out of manufacturing income
 exemption will apply regardless of whether dividends
are paid to a resident member or non-resident member
2. There is no withholding tax on dividends paid out to a
resident member by the resident non-manufacturing
company
WITHHOLDING TAXES ON INTERNATIONAL
TRANSACTIONS
 Agents for non-resident (sec.110)
 A person who makes a Lesotho source income payment
to a non-resident which is not covered by sec.107 & 108
has to do the following before making such a payment;
a) Give the Commissioner General a statement in
writing stating out the amount of the payment; and
b) Wait until the Commissioner General has given a
notice in writing of the amount (if any) required to be
withheld from the payment in respect of tax due, or
which may become due, by the non-resident
WITHHOLDING TAXES ON
INTERNATIONAL TRANSACTIONS
c) Comply with the notice given out by the Commissioner
General
 NB: in the absence of specific information from the
commissioner, those payments should be subject to
withholding tax at 25%
ELECTING NON-RESIDENT (sec. 109)
 Electing non-resident is a non-resident who opts to
be taxed by way of assessment through filing of the
income tax return.
 The electing non-resident is taxed at the rate
specified in the fourth schedule of the act which is
currently 30%
 Electing non-resident is taxed at 30% only on
Lesotho source income.
 This tax payer is allowed to deduct allowable
expenses provided these expenses constitute
Lesotho source income in the hands of the recipient
 Electing non-resident is entitled to a credit against
tax liability for any withholding taxes paid.
EXAMPLES.
Mr Ngoana Malekelle, a South African resident staying in Roodeport,
received the following gross income for the year ended 31 March 2017:
(i) M78, 000 fee for work done for the Lesotho Embassy in Pretoria,
South Africa. It cost him M53, 000 to do this work.
(ii) M109, 000 dividend income from Jabulani Investments (Pty) Ltd.
Jabulani Investments’ income comes solely from dividends earned
from Marotholi Properties (Pty) Ltd, a Lesotho resident company,
which derives its income from rental and sale of industrial,
commercial and residential buildings in Lesotho.
(iii) M250, 000 disposal proceeds from the sale of part of his interest to
his fellow partner in Naleli Partners, a Lesotho resident
partnership. At the time of sale, the adjusted cost base (ACB) of
the part disposed of was M210, 000. After disposal, his interest in
the partnership was reduced to 52%.
EXAMPLES.
(iv) M101, 000 lease rental for photocopying machines and computers
leased to Halabaloo Communications (Pty) Ltd, a Lesotho resident
company. Ngoana Malekelle’s service contract costs on this equipment
amounted to M35, 000.
(v) M60, 000 interest on a loan to Halabaloo Communications (Pty) Ltd.
(vi) M75, 000 distributive share of partnership profit from Naleli
Partners.
(vii) M168, 000 from Mahakoe (Pty) Ltd, a Lesotho resident, as
royalties for precious stones collected from the mountains in Lesotho
on behalf of Mahakoe (Pty) Ltd. Collection costs to Ngoana Malekelle
amounted to M100, 000.
EXAMPLES.
(viii) M180, 000 salary received from South African Airways as a flight
attendant for flights in and out of Lesotho.

Ngoana’s expenses in relation to transactions (iv) and (vii) above

constituted deductible amounts against Lesotho source income in the
hands of their recipients.
Required:
(a) (i) Calculate the withholding tax deducted from the payments
made to Ngoana Malakelle under ss.107 and 108 or any other
relevant sections of the Income Tax (amendment) Act 1993 [The
Act]. (6 marks)
(ii) In the case of any amounts that you have subjected to
withholding tax other than under ss.107 and 108, explain the basis
on which tax has been withheld. (2 marks)
EXAMPLES.
(b) Calculate the tax that would have been payable by Ngoana
Malekelle if he had elected to be taxed by assessment in
accordance with s.109 of the Act. (7 marks)
SOLUTION
Ngoana Malekelle
(a) (i) Withholding tax paid (ss.107 and 108):
Income Withholding Withholding
Paid by; Tax rate tax amount
M % M
Lesotho Embassy 78, 000 10 7, 800
Dividends 109,000 10 10,900
Naleli fellow partner 250, 000 25 62, 500*
Halabaloo Com 101, 000 10 10,100
Halabaloo Com 60, 000 10 6, 000
Naleli Partners 75, 000 25 18, 750*
Mahakoe 168, 000 10 16, 800
132,850
SOLUTION
(ii) The amounts marked with an asterisk (*) are not subject
to withholding tax in accordance with ss.107 and 108. In such
circumstances, s.110 (Agents for non-residents) requires a
person making a payment to a non-resident to obtain
information from the Commissioner of Income Tax regarding
the amount of tax he/she should withhold from such a
payment.
The assumption here is that such information was obtained
on these payments and the Commissioner required the
standard rate of tax (i.e. 25%), applicable to non-resident
(s.12), to be used.
SOLUTION
(b) Tax that would be payable as an electing non-resident (s.109):
M
Gross income:
Payment from Lesotho Embassy 78, 000
Dividends from Jabulany 109,000
Disposal proceeds from Naleli Partners 250, 000
Equipment lease rental from Halabaloo 101, 000
Loan interest from Halabaloo 60, 000
Partnership profit from Naleli 75, 000
Royalties from Mahakoe 168, 000
Gross income 841, 000
SOLUTION CONTINUES
Less deductible expenses:
ACB of disposed interest in Naleli Partners 210, 000
Equipment service costs 35, 000
Precious stones collection costs 100, 000
–––––––––
Chargeable income 496, 000
–––––––––
Tax payable = 30% x 496,000 = 148,800
ADVANTAGES OF ELECTING TO BE TAXED BY
ASSESSMENT TO A BY A NON-RESIDENT
 The advantage of being an electing non-resident is
that when a taxpayer files an income tax return, the
taxpayer has an advantage to claim all the tax
deductible expenses in computing chargeable income.
GENERAL PROVISIONS FOR WITHHOLDING TAXES
(SEC.163 TO 166)
 Tax withholding certificate (sec.163)
 Withholding agent must provide tax withholding certificate to
payees showing:
 The amount of payment

 Tax withheld during the year of assessment

 Certificate should be provided within the following time

frame:
i. In the case of an employee or a person who
receives pension: within 28 days after the end of
the year of assessment
ii. Where the employee has ceased employment
during the year: within 7 days of the termination of
employment
iii. In any other case on the date of payment
GENERAL PROVISIONS FOR WITHHOLDING
TAXES (SEC.163 TO 166) continued…….
 Record of payments and tax withheld (sec.164)
 Withholding agent is obliged to:
 Maintain following records in relation to
taxes withheld;
 Name and address of each payee
 Amount paid or payable to such a person
 Amount of tax withheld
 Any other information as the commissioner
may require
 File a detailed return of taxes withheld within
28 days after the end of the year of
assessment
GENERAL PROVISIONS FOR WITHHOLDING
TAXES (SEC.163 TO 166) continued…….
 Failure to withhold tax (sec. 165)
 If the withholding agent fails to withhold tax is
personally liable to pay amount of tax that
should have been withheld
 But he or she can still recover the amount from
the payee
 Penalties for an offence to failure to withhold tax(Se.
178)
 The agent is liable on conviction to a fine not exceeding
M10,000 or
 To imprisonment for a term not exceeding two year or
 both
GENERAL PROVISIONS FOR WITHHOLDING
TAXES (SEC.163 TO 166) continued……
 Payment of tax withheld (sec.166)
 Taxes withheld must be paid within the
following time limits:
a) The general rule is in any case, withholding
taxes should be paid immediately after
payment has been made
b) However, taxes withheld from the following
are to be paid within 15 days of the end of the
month in which tax was withheld:
 From employees
 From resident contractors
 On periodic payments from
superannuation funds