The Intermediary Money Transfer Tax (IMTT) has been a very contentious topic since its amendment and increase to 2%. The upsurge on this tax rate was greatly welcomed by the taxman as it obviously widened the revenue base for the government. Conversely, some of the amendments to this provision left some taxpayers in a quandary and failing to determine whether the 2% tax applies on every transaction. Particularly on payments made to employees. It is however, vital for all employers to take note that IMTT does not apply on employee’s salaries including any payments of any other benefits to the same.
Firstly, it is key to note that IMTT was introduced in 2002 and it applied on various transactions made through banks and building societies at a rate of 0.05%. However, the 2018 amendment increased the rate to 2% and brought various changes which included transactions on which the IMTT should be applied as well as various exemptions. In that regard, the Income Tax Act specifically prescribes that, ‘transaction on which the tax is payable does not include the transfer of money on payment of remuneration.’ Let us briefly have a look at this particular exemption.
As highlighted above, the law prescribes that the 2% IMTT is not applicable on payments of remuneration. It is therefore imperative that employers pay strict attention to the definition of remuneration as defined by the Act. Technically, the definition of remuneration is wide and embraces all forms of payments of benefits to an employee that accrued as a result of employment or contract of employment. Further the Act provides that such payments of remuneration are exempt from the 2% IMTT whether or not they were subjected to PAYE. In other words, the qualifying transaction need not to be included for PAYE calculation for the exemption to be applicable.
In essence, the Act exempts the 2%IMTT on any payments to employees that constitute salaries, bonuses, gratuities, retrenchment packages, leave pay, allowances (holiday, housing, transport, airtime etc). It is key to note that, the fact that some of these payments may be paid separately from, or outside the monthly salaries is inconsequential to the applicability of the exemption.
Lastly, it should be noted that the tax laws apply equally to all taxpayers whether formal or informal, corporates or individuals. Accordingly, the exemption also applies on transfer of ‘remuneration’ i.e., salaries and benefits to casual workers and domestic workers. Therefore, employers are encouraged to take not of this exemption and ensure that financial institutions apply the 2% tax within the parameters of the law.