Guide to P.A.Y.E Who Must Deduct Income Tax

 

WHO MUST DEDUCT INCOME TAX

Every person paying emoluments which term includes salary, wages, bonuses, etc., whether of their own account or on behalf of any other person, hereinafter referred to as an Employer, must make tax deductions from such payments, the first deduction to commence from the first payment of emoluments, whether daily, weekly, fortnightly or monthly.

 

PAY SUBJECT TO INCOME TAX DEDUCTIONS

Pay is an employee's earnings for the period including the value of free board and lodging or any other perquisite, bonus, commission, overtime, director's fees, compensation for loss of office and any other benefits or allowances.

 

ITEMS NOT TO BE TREATED AS PAY

The following items should not be treated as pay for taxation purposes:-

  1. Pensions, and lump sums paid in respect of the commutation of pensions (whether statutory or under approved pension schemes) or in respect of once for all gratuities upon retirement;
  2. Benefits under the National Insurance Act;
  3. Payments of or contributions by the employer towards expenses that were actually incurred by the employee in performing the duties of his employment such as travelling and subsistence expenses;
  4. Any salary, fees or share of profits which are to be taken into account in computing the gains or profits from a trade, business, profession or vocation.

If the employer is doubtful whether a particular payment should be treated as pay for deduction purposes, he should consult the Tax Operations and Services Department.

PAYMENTS CREDITED TO AN EMPLOYEE'S ACCOUNT

Crediting pay to an employee's bank account constitutes payment in the same way as payment in cash, and tax should be deducted accordingly. The same position applies if the amount is credited to an account with the employer on which the employee is free to draw, or is applied in reduction of a debt due by him to the employer, unless the debt arises from a payment in advance or on account of remuneration from which tax was deducted.

Where there is any doubt as to whether a payment has been made, the matter should be referred to the Tax Operations & Services Department.

 

For more information, see the Guide to Pay As You Earn System (P.A.Y.E).