URA has kicked off compliance campaigns aimed at encouraging voluntary disclosures of tax related information.
At the fore of these campaigns is the three- month PAYE (Pay as you earn) compliance campaign, running October to December. The campaign is targeted at employers to enable them self-correct on tax matters applicable.
"These campaigns are designed to signal to the public that URA is fully aware of the various dishonest schemes intended at reducing on tax liability or outright tax evasion in the different targeted sectors of the economy; and that URA will be relentless in its efforts to address the issues therein, including taking enforcement action to demonstrate equity and fairness in tax administration," stressed Patrick Mukibi, the Commissioner Tax Investigations department.
Pay as you earn is one of the taxes administered under the Income Tax Act. It is a withholding tax charged on employment income. It is directly pegged onto one's employment income. Unlike what the common norm may be, this tax is not only administered on basic salary but on all earnings that arise from one's employment.
These include those in the past, present or in future, including the value of any benefit, advantage or facility granted to an employee.
Employment income includes wages, salary, leave pay, payment in lieu of leave - i.e. one decides to work during their leave and earns salary, overtime pay, fees, commission, gratuity, bonus and allowances (entertainment, duty, utility, welfare, housing or any other allowance). Also included are retirement benefits, (the list is not conclusive). It is from the summation of the earnings above that employers deduct PAYE monthly.
However, employees that earn less than the threshold monthly do not pay this tax. A threshold is the amount below which an individual does not pay tax. In the 2012/13 budget, the government raised the PAYE monthly threshold from Shs 130,000 to Shs 235,000.
The new PAYE rates have the following implications:
No tax is due from employees earning below Shs 235,000 monthly.
10% is the rate applied for income above Shs 235,000 but not beyond Shs 335,000.
Income earners above Shs 335,000 but not beyond Shs 410,000 a month, pay Shs 10,000 plus 20% of the amount by which their chargeable income exceeds Shs 335,000.
For income that exceeds Shs 410,000 monthly, tax payable in this bracket is the Shs 25,000 plus 30% of the amount by which chargeable income exceeds Shs 410,000.
For those earning 10 million and more monthly, a rate of 30% after a reduction of 410,000/= is made + Shs 25,000/=. A rate of 10% is also charged on the monthly income that exceeds Shs 10 million.
All employers who are authorized to withhold tax are mandated to make timely and accurate PAYE declarations to URA, maintain employees' records and account for the tax deducted on a monthly basis. This is to be done by the 15th day of the month following the payment month. For instance, PAYE declarations and tax due for the month of November 2012 should be made by December 15, 2012.
Non-compliance under this tax head is usually manifested by employers/designated withholding agents who:
Are not registered for PAYE.
Do not file PAYE returns.
Withhold tax from payments of employment income to employees and don't remit it to URA as required under Section 123 of the Income Tax Act.
Make false or misleading statements through the exclusion of:
Foreign salaries paid to expatriates in addition to local allowances received from their monthly PAYE computation.
Leave pay, payment in lieu of leave, overtime pay, fees, commission, gratuity, bonus, or the amount of travelling, entertainment, utilities, cost of living, medical, housing, or other allowance from PAYE computation.
Amounts of any discharge or reimbursement by an employer of expenditure incurred by an employee, other than expenditure incurred by an employee on behalf of the employer which serves the proper business purposes of the employer.
Benefits provided by an employer that consist of the use, or availability for use, of a motor vehicle wholly or partly for the private purposes of the employee.
Benefits that include the provision of a housekeeper, chauffeur, gardener or other domestic assistants.
Benefits that include the provision of utilities in respect of the employee's place of residence.
Benefit provided by an employer to an employee consisting of a loan or loans in total exceeding one million shillings at a rate of interest below the statutory rate.
An employer/designated withholding agent who fails to comply becomes liable to pay the tax along with any penalties and interests.
The authority is hopeful that although Individuals perceive tax as an unwarranted lifetime obligation to be contended against given opportunity, the campaigns will encourage a mentality of citizens who appreciate tax as an honorable civic duty.