Pay as You Earn

Pay as You Earn

Pay as You Earn (PAYE) is the method used to collect Income Tax from Emoluments Category of income. The is method is applied to every individual earning employment income. All employers are required to withhold income tax from emoluments of employees, calculated according to the PAYE marginal tax rates for the given income tax brackets.

Currently, the marginal tax rates are as indicated below.

Annual Bracket Monthly Bracket Marginal Rate
1 First K39,600 First K3,300 0%
2 Above K39,600 up to K49,200 Above K3,300 up to K4,100 25%
3 Above K49,200 up to K74,400 Above K4,100 up to K6,200 30%
4 Above K74,400 Above K6,200 37.5%

If for example, am employ earns monthly income of K30,000, then pay as you earn is calculated as follows:

Bracket of income Marginal rate application Marginal tax
1. First 3,300 is taxed at 0%,   3,300  X    0.0%  =  0
2. Next 1,100, up to 4100   1,100  X  25.0%  = 275
3. Next 2,100, up to 6,200   2,100  X  30.0%  = 630
4. Balance of 23,800, from 30,000 23,800  X  37.2%  = 8,920
Total tax payable 9.830

The accounting period Income Tax is a calendar year. Therefore, Income Tax bands and marginal tax rates are given for a year.

A simple PAYE formula is used to calculate monthly tax that must be deducted from employees. This entails dividing the annual tax band by the number of months in a year. This formula is equivalent to dividing the expected annual income of an employee by 12 (the number of months in a year and it assumes that a person will earn the same amount of income from the beginning of an accounting year to the end. If there has been an adjustment in a year, or a person has only earned employment income for part of the year becausese he joined or left employment during the course of the year, then one is likely to either over pay or under pay tax using this system.

An individual who has experienced a reduction in employment income during the year or either left or joined employment during the course of the year can file return at the end of an accounting period in order for the year end adjustment to be made, and claim a refund.

Where an individual does not expect any refund, there is no requirement to file a return. The legal obligation to account for PAYE falls on the employer. The employer is required to file monthly returns and make payments by the 14th Day of the month following the month of deduction.

Certain categories of emoluments are currently exempt from tax. These include: