Computations of Employees Tax:Pay As You Earn (PAYE).
to understand calculation of Pay As You Earn (PAYE), we need to understand the PAYE system. The PAYE system is a method of paying Income Tax on remuneration.The employer is responsible for the calculation of the PAYE due. Computations follows all forms of remuneration granted to the employees in terms of the 13th schedule to the Income Tax Act. The employee, on the other hand, is expected to furnish the employer with full information on other sources of income and proof of the allowable deductions and credits to be taken into account in determining PAYE liability.
The allowable deductions include pension contributions, subscriptions to professional, trade or technical associations and cost of tradesman’s tools, among others. Credits include mentally or physically disabled person‟s credit, elderly person‟s credit, blind person‟s credit, medical expenses and cost of purchasing invalid appliances.
The rates of tax applicable each year are provided for in the Finance Act and the tax deduction tables can be obtained from the ZIMRA website. The tax table operates on an escalating scale basis (i.e. the higher the earnings, the greater the percentage of tax that should be paid by the employee). It should, however, be noted that when the earnings reach a certain amount, a flat rate of tax becomes applicable for any earnings above this level. All forms of remuneration should be taken into account before subjecting the income to tax.
PAYE is calculated as follows:
- Determine gross income for the day/week/month/year.
- Deduct exempt income, for instance bonus as per limit in the Act, you get => Income
- Deduct allowable deductions, e.g. pensions, you get => Taxable Income
- Apply the rate of tax applicable, you get => PAYE due before Aids Levy
- Apply the 3% Aids Levy on PAYE, you get => Total tax to be remitted to ZIMRA
Remission of PAYE to ZIMRA
Any employer who deducts PAYE from the employee’s remuneration is expected to remit the amount to ZIMRA on or before the 10th of the following month.
