The Pay As You Earn (PAYE) system is a method of paying Income Tax on remuneration. The employer is mandated to deduct tax from salary or pension earnings before paying out the net salary or pension.

This article is intended to provide you with a simple and logical introduction to some basic principles of Income Tax as it applies to employees.

The Income Tax Act [Chapter 23:06] specifies what elements of an employee’s remuneration or earnings are subject to tax and at what rate of tax. It also deals with what income is exempt from tax and what deductions are allowed from these earnings, prior to tax being calculated.

Assume then for a moment that everything you earn - be it in cash, benefits, or an item of value given instead of cash - is subject to some form of tax. However, the determination of the value and its associated tax liability in respect of any of these forms of payments will differ in some cases.

The official tax table operates on an escalating scale basis, (i.e. the higher your earnings, the greater percentage tax you pay on each bracket of earnings). When your earnings reach a certain amount, the percentage stops increasing and a flat rate of tax becomes applicable for any earnings above this level - that is Marginal Tax Rate (MTR).

The Table below shows tax tables for period before 1 August 2019.

Currency Earned by Employee

Tax-Free Threshold

Highest Rate of PAYE

Highest Bracket of Earnings

RTGS$

350.00

45%

20,001.00 and above

 

Earnings in US$ were being taxed using same tax tables above after converting the foreign currency earnings into RTGS$ using the interbank rate.

The Table below shows the tax free threshold, rates of PAYE and highest bracket of Earnings for salaries paid in RTGS$ and US$ with effect from 1 August 2019.

Currency Earned by Employee

Tax-Free Threshold

Highest Rate of PAYE

Highest Bracket of Earnings

RTGS$

700.00

45%

30,001.00 and above

USD

70.00

45%

3,001.00 and above

 

The due date for the submission of PAYE returns and payment is the 10th of the following month.

 

PAYE is calculated as follows:

  1. Determine gross income for the day/week/month/year.
  2. Deduct exempt income, for instance bonus: You get => Income
  3. Deduct allowable deductions, e.g. pension: You get => Taxable Income.
  4. Please refer to tax tables. You get => Tax on Taxable Income.
  5. Deduct tax credits e.g. elderly, blind or disabled persons ($600.00) and medical credit $1.00 of every $2.00 paid: You get => Tax after credits.
  6. Calculate 3% Aids Levy and add to tax after credits: You get actual tax payable.