Q.03. Why have two different withholding tax rates?


The rate differential is cost for non-documentation, a disincentive to remain out of tax system and not complying with the laws of the country. Since such persons do business and earn income they are required to contribute towards national revenue. Such measures are common in other tax jurisdictions especially the developing countries where tax culture is not so developed and cash transactions dominate the economic activity. If the non-licensed taxpayers register and comply by law, they should also be subject to 2% adjustable withholding income tax on their contract receipts.