The benefits of the Withholding Tax are the following.
Steady Revenue Stream for the Government
Withholding tax provides a continuous flow of revenue to the government, helping it manage its budget and fund public services like healthcare, education, and infrastructure projects. This system avoids a situation where the government would need to wait until the end of the tax year to collect all its revenue.
Encourages Tax Compliance
By collecting taxes at the source, withholding tax promotes greater tax compliance. Taxpayers are less likely to underreport income or delay payments, as the tax is automatically deducted before they receive their earnings.
Reduces Taxpayer Burden
For taxpayers, withholding tax reduces the burden of having to pay a large lump sum at the end of the year. Instead, they make smaller, regular payments, making tax obligations more manageable.
Supports Efficient Tax Administration
Since the tax is deducted by employers, banks, or businesses, it reduces the administrative burden on tax authorities. The responsibility for collecting and remitting the tax is spread across multiple entities, making the system more efficient.