What is the primary purpose of withholding tax?

Withholding tax serves the primary purpose of collecting income tax directly at the source of payment to employees or contractors. This system requires employers or businesses to deduct a portion of the payment due to their employees or contractors and remit it to the government as a prepayment of the workers' income tax obligations.

This method simplifies tax collection for the government and ensures that tax revenue is received in a timely manner, reducing the risk of tax evasion and ensuring compliance with tax laws. It also helps taxpayers avoid a large tax bill when they file their tax returns since taxes have already been withheld and paid during the year.

The other options do not accurately reflect the main function of withholding tax. For example, while incentivizing charities and nonprofit organizations or providing tax refunds are important aspects of tax policy, they do not relate to the core function of withholding tax itself. Similarly, it does not aim to avoid taxing corporations; rather, it addresses individual tax compliance. Likewise, while tax refunds are related to the tax system, they result from overpayment and are not the purpose of withholding tax.