As directed by tax authority:
- Company is supposed to withhold certain portion of gross amount before making payment to receiver (payee).
- Company is supposed to issue WTH tax certificate to payee after deducting withholding tax amount.
- Company is supposed to remit the deducted tax amount to tax authority before specific date (normally before 7th of next month).
- Company is supposed to file withholding tax returns to tax authority by providing details in specific format.
Challenges in managing withholding tax
Tax authority may penalize company heavily, if company defaults in fulfilling its obligation:
→If company forgets to deduct withholding tax amount while making payment to payee
→If company does not remit the collected WTH tax amount to tax authority before specified date.
→If company fails to file WTH tax returns to local tax authority with all relevant details before specified date.
→If company provides wrong data to tax authority
Failing in any steps will invite very heavy penalty from tax authority. Failing in fulfilling obligation is not an option for the company.
Hence company has to make sure that correct WTH tax is deducted before making payment to payee. For each & every transaction, WTH tax amount along with other transactions detail need to be recorded properly. For filling withholding tax returns, information of WTH tax along with other details of transactions needs to be put together. Company cannot afford to breach date specified by tax authority for filling returns hence ability of produce accurate tax report as quickly as possible is crucial.
With increasing number of transaction in the company, managing WTH tax (recording & reporting) manually becomes very difficult.
Company needs to automate the process of recording & reporting WTH tax as much as possible. This is where sap comes in, sap helps in automating the process and reduces manual intervention at the same time increases data accuracy and speed of tax report generation.
Configuration in sap is done in such a way that whenever a transaction is posted, withholding tax amount along with other transaction details is recorded. Withholding tax reports can be fetched in sap at any given point of time.
Process of generating withholding tax certificate can be automated as well.