The end of the month is approaching, which is a joyous time for a number. It is at this point that you hear employees calling their employers names since their net- pay would not be matching with the gross income specified in their contracts. PAYE and NSSA are the main causes, and some have referred to them as the devils of their era. Allow me to walk you through the Pay As You Earn system for employees.
The Pay As You Earn (PAYE) system is a technique of calculating and paying income tax on wages. Before handing out the net income or pension, the employer is required to deduct tax from salary or pension earnings. The Income Tax Act [Chapter 23:06] outlines which components of an employee’s salary or earnings are taxed and at what rate. It also addresses what income is exempt from taxation and what deductions are permitted from these earnings prior to taxation. Section 4A (1)(a) of the Finance Act Para 3(1b) of the 13th Schedule to the ITA; Section 2 of the Finance Act no 2 & 3 of 2019 is the legislation that guides on PAYE remittance.
Everything that one makes or earns – whether in cash, perks, or an item of value given in lieu of cash – is taxed in some way. However, in some situations, the determination of the value and related tax liability in relation to any of these kinds of payment will differ.
The official tax table is based on a progressive rate of taxation, which means that the higher your wages, the higher the percentage tax you pay on each earnings group. When your earnings reach a particular level, the percentage stops increasing and a flat tax rate is applied to any earnings over that level – this is known as the Marginal Tax Rate (MTR).
PAYE should be remitted to ZIMRA by the 10th day of the month following the month of deduction, accompanied by PAYE remittance advice (P2).
PAYE is calculated as follows:
- Determine gross income for the day/week/month/year.
- Deduct exempt income eg bonus = Income
- Deduct allowable deductions, e.g. pension: Taxable Income.
- Refer to https://www.zimra.co.zw/domestic-taxes/tax-tables = Tax on Taxable Income. Salaries with both local and USD currency components use the USD tax tables and apportion the tax due accordingly
- Deduct tax credits e.g elderly, blind or disabled persons (ZWL450 000.00 or US$900.00 per annum) and medical credit $1.00 of every $2.00 paid = Tax after credits
- Calculate 3% Aids Levy and add to tax after credits = Actual tax payable.