Update: 1-Aug-2021. The Tanzania Revenue Authority has announced changes, through the Finance Act 2021, that lowers the minimum individual income tax rate to 8%, down from the previous 9%.
Through our Payroll Series, we try to answer some of the most common payroll questions we get from our clients. Today, we look at PAYE in Tanzania.
Probably one of the most common questions asked by most businesses with employees is, What is PAYE and how does it work? Here’s our quick run through to help you understand what exactly PAYE is, how it works and how it is calculated. Let’s dive in.
What is PAYE?
So what is PAYE? PAYE, short for Pay-As-Your-Earn, is a Tanzanian withholding tax applied on taxable incomes of applicable employees. Every employer in Tanzania is required, by law, to deduct the tax from an employee’s taxable salaries or wages and submit such deductions to the Tanzania Revenue Authority.
What are the current PAYE Rates in Tanzania?
So the next most common question we get is, What are the PAYE Rates and how do we calculate PAYE?
An often question we get is: “How is PAYE Calculated”. PAYE has an applicable tax rate that is based on an employee’s income level. Generally, these rates are published by the Tanzania Revenue Authority at the start of the fiscal year in July.
The effective tax rate deducted as PAYE from the employee (of the taxable income) is based on the following rates. The rates provided are for the fiscal year 2021/2022.
Note: Threshold per annum: Annual Income of Ths 3,240,000/= is not taxable
PAYE for Directors
A common confusion amongst many is whether or not PAYE is applicable to Directors of a company. For any Director of a company (in the case of a Limited Liability Company, or LTD), Tax is withheld at a rate of 15% of the fees paid to the director(s). This, however, is a non-final withholding tax and is applicable for directors other than full time service directors.
PAYE for Non-Residents
For any employee of a company or business, who is a non-resident, i.e. non Tanzanian national, a flat rate of 15% is applicable on the gross income.
How often is PAYE paid and filed?
So how often do you need to pay PAYE? Well the simple answer is, as often as you pay your employees. The same way that you process your salaries and wages at the end of the month, so must you process your PAYE liabilities and ensure that all relevant payments are processed within seven days of the new calendar month. PAYE administration now includes monthly filing on the new Tanzania Revenue Authority eFiling Portal as well.
PAYE for secondary employment
This one’s a bit tricky and often overlooked. However, ignorance of the law is never an excuse.
Where an employee holds more than one employment position, the income from the second of these employments must be taxed at the highest rate of income tax available.
It is the employee’s responsibility to ensure that he selects and correctly communicates which employment is primary – and which is secondary. The employee also has the responsibility of informing his employers of the number of employments held.
However, and at the same time, the employer must also have a mechanism in place to check with the employees, at minimum every six (6) months, whether the employment at hand is primary or secondary.
Conclusion
While PAYE may seem a hard concept to grasp at first, it really isn’t that complicated. As a small business owner, you can easily calculate your employment taxes yourself and ensure adequate compliance. However, if you are looking to unburden yourself from processing your Payroll and its related Taxes in Tanzania every month then consider outsourcing your payroll processing to a reputable accounting company. Outsourcing is often the best way to ensure compliance is achieved quickly and easily.
Got feedback?
Still got questions about PAYE, or another Tax in Tanzania? Write to us on [email protected] and we will help you the best we can. Also check out our Outsourced Payroll Processing Services if you wish to focus your attention better on your core business.