On Thursday last week (10/09/2009) i saw a communique from KRA in the daily nation newspaper page 25.... indicating that fund managers a required to deduct withholding tax before distributing interest gains to unit holders...

I thought unit trusts and gains from the same are tax exempt,,,,,what does this mean? i have tried to contact the contact person as per that extract without much success...

are there fund managers who are complying to this directive?? and what happens to those who dont like my fund manager..

Its just me whatever choice you make in life make sure that you can live with it.

@ saba

Check daily nation paper dated 10/09/2009... page 25....

Its just me
whatever choice you make in life make sure that you can live with it.

@ Mukiha,,

Thanks for that clarification... to the best of my knowledge,my fund manager has not been deducting withholding tax from money market interest... whats the implication on my part if KRA knocks the big door demanding for payment of the same.... am i the liable party or will it be my fund manager??? if its the later,can the fund manager pass the load to us unit holders or how would that work??

Its just me
whatever choice you make in life make sure that you can live with it.

It appears that there are two groups of fund managers ...one has been withholding,and the other group has not been withholding. It will be very interesting how this unfolds. It is potentially one of the most under-reported manenos in the financial markets.

Commonsense is never common

@ Spec.............

waoh so there have been different practices in this regard? i wonder what happens next...

@ Mukiha....

If i declare my tax returns and indicate appropriately that i earned interest income from a money market fund yet i didnt pay the tax or rather my tax was not withheld,will i be free of blame by KRA,,if anything i have done my part right??
on the same light assuming that the govt issue a directive that from 2day both the unpaid and future WHT be remmitted with immediate effect,who pays the unpaid portion? keeping in mind that some investors might have withdrawn before this directive was issued....

Its just me
whatever choice you make in life make sure that you can live with it.

@Ericks;

Let me explain how Withholding tax works,then you will see that you have nothing to worry about as long as you declare the interest earned in your annual tax return.

First,I reiterate that withholding tax is NOT a final tax,it is an installment tax.

Suppose you kept a million bob in one of the good money market funds and earned an average 10%. That's sh100k additional income for you; sio?

Now,suppose further that your fund manager is one of those who have been deducting this withholding tax at the rate of 15% (not sure about the rate)

So,instead of getting the 100k,you actually get 85k plus a withholding tax certificate for 15k

Come the end of the year; you are supposed to declare the full 100k interest and add it to your other income.

Now if you can keep a million bob in a unit trust for a year,your total income must have crossed over into the top tax bracket of 30%.

Therefore,the tax on this interest will be 30% of 100k = 30k.

But 15k has already been deducted through withholding tax. Thus the net tax payable is 15k.

If the withholding tax had not been deducted,then you should pay the full 30k to KRA.

Therefore,in effect,you net interest earned is 70k (or 7%)....this is where the KenGen P.I.Bond is better than other money market investments.....it is tax exempt!!! Presumably,the interest will be accompanied with a tax exemption certificate.

BTW: Even though tax returns are due on June 30th,Tax payments are due on April 30th. So,don't wait until June to pay your taxes; you be hit with penalties for late payment!!! And then you will complain that KRA is unfair [the top of the tax return form states these dates very clearly]

Behind the gardens...Behind the wall...Under the tree (Including: Red...Dark Blue...Yellow)

@Mukiha,

Sorry to change the topic but does it also mean that dividend payments should also be declared and if you then fall in the top tax bracket,pay the 25 per cent to the tax man i.e since witholding tax is 5 per cent in this case?

@ mkimwa

for purposes of this post,When is a dividend deemed to be qualifying or non qualifying for that matter?

Its just me whatever choice you make in life make sure that you can live with it.

@Ericks,

The laws definition of qualifying dvidends is very vague.. read this..

'qualifying dividend' means that part of the aggregate dividend that is chargeable to tax under section 3(2)(b) and which has not been otherwise exempted under any other provision of this Act,but shall not include a dividend paid by a designated co-operative society subject to tax under section 19A(2) or 19A(3);'

Generally.. whether a dividend is qualifying depends on the legislation/gazzettment governing the shareholder and company declaring dividends. E.g. a company registered as a bank,or a financial institution licensed under the Banking Act may have different treatment with a normal trading company under the Company's Act,or a SACCO.

Most of the times,dividends from most companies is deemed qualifying.

Qualifying dividends have WHT as a final tax,you need to keep the WHT certificates and use them while filing your tax returns.

@Mukiha,

Even though withholding tax may be double taxation,you are meant to keep the advice slip for your end of year tax returns. I understand you are meant to deduct the withholding tax as tax already paid by you to KRA. Problem is our meager dividends. The process of recovering Shs. 79/- is not worth the effort.




Baada ya dhiki,faaraja