1. What is Pay As You Earn (PAYE)?
This is a method of deducting tax from employees' emoluments in proportion to what they earn. Under this system, the employer is empowered to:
a) calculate tax payable by every employee
b) deduct tax due from the emoluments, and
c) remit tax deducted to ZRA
2. What are emoluments?
The term "emoluments" means total earnings of an employee from employment. These include wages, salaries, overtime, leave pay, commissions, fees, bonuses, gratuities and any other payments from employment or office. (Section 2 of IT Act).
3. How is tax calculated?
Under the PAYE system, the amount of tax which the employer deducts from any pay depends on:
a) The employee’s total gross pay
b) The applicable tax rates; and
c) statutory deductions (contributions to an allowable Pension Scheme, e.g. NAPSA) up to K255.00, or the actual 5% of the gross salary whichever is lower.
For an employee with a gross pay of K15, 000.00 / month in January 2019 - which is month 1 under the Tax Tables - tax will be calculated as follows:
a) Calculation of Taxable Pay K
Gross pay 15,000.00
Taxable pay 14,745.00
b) Calculation of tax
First K 3,300.00 @ 0% - 0
Next K 800.00 @ 25% - 200.00
Next K 2,100.00 @ 30% - 630.00
Balance K 8,545.00 @ 37.5% - 3,204.38
Total tax due - 4,034.38
Total tax payable - 4,034.38
c) Calculation of Net Pay
Gross Pay K 15,000.00
Less tax K 4,034.38
Net Pay to employee K 10,965.62
The tax deducted must be remitted to ZRA by the 10th day of the subsequent month.
4. What should I do if I leave employment?
When you leave your current employment obtain a form showing all pay - roll details (ITF/P13 (2) from your former employer. This enables your new employer to deduct the correct tax deductions when you are re - employed. If the ITF/P13 (2) is not provided to your new employer, the tax deductions could be higher than you should suffer.
If you are not re-employed, you may be entitled to a tax refund as explained below.
5. How does a tax refund arise?
A tax refund may arise in the following situations:
Pay-roll errors, for example;
- use of wrong tax bands and rates
- arithmetical errors in calculating tax
- complete or partial omission of statutory deductions
b) Unemployment Repayments:
If employment ceased at any time, but before the end of the charge year, unemployment repayment may arise due to incorrect use or non-use of tax tables.
This repayment is part of the tax that you may have paid during the tax year in which the employment is terminated.
6) How can I make a claim?
You will be required to complete an Income Tax Return for Individuals (ITF/1A) which is available at all Domestic Taxes Front Office Centers or indeed from the ZRA website. Please attach the following documents:
- letter of termination of employment
- last pay-slip
- particulars of employee leaving (form ITF/P13 (1)); and
- Any other payment vouchers. This will enable the tax office to calculate the refund of tax due. A notice of advice (assessment ITF302) will then be raised and availed to you.
-Upon receipt of notice of assessment, the claimant should complete a Refund Claim form (ITF/ CF56 to complete the process for the payment of the refund.
(Claims are only going as far back as 2013, therefore, no need for clients to complete a CF256 as was the case for old cases on TARPS system from year 2012 going backwards). Refund cases captured on Taxonline do not need a CF256.
7) Where should I collect the tax refund cheque from?
Refunds are usually posted in the availed bank account but for those without a bank account the refund cheques may be collected from the paying office or indeed posted to the postal address given to ZRA.
8) What if the tax deducted is wrong?
If there is an over-deduction of tax, a refund will be made to the employee by the employer and only in the same charge year. The employer has an opportunity to correct the error in the subsequent month.
If there is an under-deduction of tax, the employer will pay the difference to the Revenue Authority through the tax returns.
9) What if the tax deducted by the employer is not remitted on time to ZRA?
If tax is not remitted on time by the employer, a penalty of 5% will be charged on the amount due, and interest @ 2% above the BOZ discount rate.
10) Are allowances received together with the salary taxable?
All cash benefits paid in the form of allowances such as education, housing, transport, utility and settling etc. are taxable.
11) Are utility bills, school fees and school association fees taxable under PAYE?
Where an employer discharges the liability of an employee by paying his/her rent, electricity, telephone, water bills, school fees or professional association fees, club membership fees and similar payments, the employer is required to add such payments to the employees emoluments and deduct tax under PAYE.
12) Are there any benefits that are not subjected to Paye?
The following benefits are not subjected to Paye ,include all other pension or retirement benifits paid on cesstion of employment i.e Gratuity ,retirement package, severance pay, compensation for loss of office etc (as per changes in the law The constitution of Zambia, (amendment) Act number 2 of 2016). Labour day Awards
Sitting allowances for councillors
Benefits that cannot be converted into cash such as free residential housing provided by the employer, canteen expenses and personal to holder cars.
13) Are payments for casual workers and daily paid workers supposed to be taxed?
Yes. They are taxed using tax tables for casual workers and daily paid workers.
14) Are persons who are employed by foreign missions and international organizations which are exempted from remitting tax under the Diplomatic and Immunities Act supposed to be taxed?
In such cases the employee is treated as his own employer and tax is collected directly from such an employee. The employee of such a mission or organization is not exempt from paying taxes.
Skill Development Levy
With effect from 1st January, 2017 Act number 46 of 2016 provides for a zero point five percent (0.5%) levy on the gross emoluments payable by an employer to the employee.
2) What is Skills Development Levy?
Skills development Levy is a tax imposed on gross emoluments that is payable by employers.
3) What amount will be paid?
Skills Development Levy is charged at the rate of 0.5% on gross emoluments and is payable by an employer.
4) When is Skills Development Levy due?
The levy is due in the same month in which the emoluments are paid or become payable.
However, the levy may be remitted to the Zambia Revenue Authority not later than the 10th day of the following month.
5) Who must bear the Skills Development Levy?
Skills Development Levy shall be borne by the employer and it shall not be deducted from the employees emoluments.
6) Do employers who are registered for PAYE need to register for Skills Development Levy separately?
No. Employers that are already registered for PAYE do not need to register separately for the levy. Accounting for the levy and submission of returns will be done at the same time as the PAYE and on the same return.
7) Recovery of Skills Development Levy
The provisions of the Income Tax Act shall apply to Skills Development Levy Act in respect of the following:
(a) Recovery of the levy
(b) Filing of returns
(c) Assessments of the levy payable
(d) Keeping of records
(e) Furnishing of information and production of documents
(f) Delegation of authority
(g) The appointment of authorized officers
(h) Penalties and sanctions
(i) The priority of tax debts in bankruptcy.
The Income Tax Act shall apply in respect of the above regarding enforcement and the administration of the Skills Development Levy Act. See common penalties in the table 1 below
8) Table 1
|No||Penalty Type||Penalty rate|
|1||Late submission of return||1,000 penalty units per month or part thereof|
|2||Late payment||5% of tax payable but not paid |
|3||Late payment interest||Bank of Zambia discount rate plus 2%|
|4||Penalties for omitted income||As per section 100 of the Income Tax Act|
Note: One penalty unit is equal to K0.30 or 30 ngwee.
Example 1: Computation of Skills Development Levy
XY Limited had accrued the following liabilities for the month of January, 2018
XY Basic Pay 400,000
Housing Allowance 150,000
Redundancy Packages 300,000
Leave Pay 60,000
Total Payments 1,010,000
As at 10th February 2018, the company had only paid out the basic pay to the employees. Levy payable for the month of January 2018 shall be computed as follows:
Total Payments 1,010,000
Redundancy Packages 300,000
Chargeable emoluments 610,000
Levy payable = 0.5% X 610,000 = K3, 050
(Note: Skills Development Levy is not charged on gratuities and redundancy packages)
9) Who is exempt from Skills Development Levy?
The Act has provided the following exemptions:
(a) Any employer in public service or local authority (This exemption does not include State owned enterprises.
(b) An employer whose annual turnover is below K800,000
(c) An approved Public Benefit Organization (PBO) as approved under the Income Tax Act.
(d) Approved donors and persons who are covered under the Diplomatic immunities and privileges Act
(e) Any person that the Minister of Finance may by Statutory Instrument exempt.