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
For an employee with a gross pay of K15, 000.00 / month in January 2018 - 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
Less: Maxi. Allowable Pension Contribution 255.00
Taxable pay 15,000.00
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 8,800.00 @ 37.5% - 3,300.00
Total tax due - 4,130.00
Total tax payable - 4,130.00
c) Calculation of Net Pay
Gross Pay K 15,000.00
Less tax K 4,130.00
Net Pay to employee K 10,870.00
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.
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: 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.