Treatment of remuneration for employees’ tax (PAYE) purposes

The Chronicle

Every employer who pays or grants any remuneration to an employee is required to deduct Employees Tax (PAYE) and remit it to the Zimbabwe Revenue Authority (ZIMRA) within the periods given in terms of Section 73 as read with the Thirteenth Schedule of the Income Tax Act. 

What constitutes remuneration for employees’ tax purposes?

The term “remuneration” covers a number of aspects which may be paid or granted  by the employer to any employee  as part of their conditions of employment and includes; any amount of income received by the employee by way of salary, leave pay, allowance, wage, overtime pay, benefits or advantages, whether in cash or otherwise. 

The definition of remuneration also includes amounts received in the form of:

– Annuities  for services rendered 

– withdrawal from or winding up of a benefit, pension or unapproved fund  

– an amount equal to the value of an advantage or benefit in respect of employment, service, office or other gainful occupation or in connection with the taking up or termination of employment, service, office or other gainful occupation.

From the above, it should be highlighted that the term generally covers the majority of fringe benefits enjoyed by employees as part of their conditions of employment.    

What is excluded from remuneration?

-Amounts paid or payable to any person in the course of any trade conducted by him independently. An example is consultancy services or other business income. However, commissions earned by insurance agents and estate agents constitute remuneration subject to PAYE. 

– Any amount of director’s fees paid or payable to any individual by any company in respect of services rendered or to be rendered by such individual to such company if no other amounts constituting remuneration in terms of the definition given above have been paid or become payable to such individual by such company.

– Fees paid or payable to the chairman or a member of a board of any statutory corporation in respect of services rendered or to be rendered by such chairman or member on such board if no other amounts constituting remuneration in terms of the definition given above have been paid or become payable to such chairman or member by such statutory corporation.

– Any amount exempt from income tax  

– Any amount paid or payable out of moneys of a partnership to a person who is a member of that partnership.

– Any amount paid or payable to an employee wholly in reimbursement of expenditure actually incurred by such employee in the course of his employment.

– Any amount which is paid or payable to a person by way of a commutation of a pension or annuity and which does not form part of that person’s gross income. 

– Any amount which the Commissioner-General directs or prescribes shall not be remuneration for the purposes of this Schedule.

What are some of the common examples of fringe benefits paid or granted by employers to employees?

Company motor vehicle, house boats, security, cell phone allowance, airtime, meals, canteen meals, parking fees, DStv subscriptions, golf subscriptions, fuel, accommodation, educational assistance, school fees, holidays and others are some of the examples. The above list is therefore not exhaustive.   

Who qualifies as an Employer under the Income Tax Act? 

Any person who pays or is liable to pay to any employee any amount by way of remuneration. It also includes any person responsible for the payment of any amount by way of remuneration to any employee under any law or out of public funds. Statutory corporations and other undertakings operated by the government also qualify as employers if they pay any remuneration. 

Who qualifies as an Employee under the Income Tax Act? 

Any  individual to whom remuneration is paid or payable at an annual rate that is more than the amount specified in subparagraph (i) of paragraph (a) of subsection (2) of section 14 of the Finance Act [Chapter 23:04] in respect of the year of assessment concerned. The current minimum annual remuneration subject to PAYE is $4,201 and this was effective 1 January 2019. 

What treatment should be given to amounts paid to Executive Directors?

Any amount of director’s fees paid or payable to any individual by any company in respect of services rendered or to be rendered by such individual to such company and including other amounts constituting remuneration in terms of the  definition given above are liable to PAYE.  

What treatment should be given to amounts paid to Chairman of a Board and Non-Executive Directors of companies? 

Any amount of fees paid or payable to the chairman or a member of a board of any statutory corporation in respect of services rendered or to be rendered is not subject to PAYE  if no other amounts constituting remuneration are paid or have become payable.  

As an example: 

1) Where a non-executive director is only entitled to fees for sitting on the board. He/she is not expected to PAYE on such fees. However, the fees are liable to withholding tax on non-executive directors fees.  

11) On the contrary, if the non-executive director gets some fringe benefits e.g. usage of company vehicle, fuel allowance , airtime and other forms of remuneration , the directors’ fees together with whatever fringe benefits should be subjected to PAYE. 

Disclaimer – This article was compiled by the Zimbabwe Revenue Authority for information purposes only. ZIMRA shall not accept responsibility for loss or damage arising from use of material in this article and no liability will attach to the Zimbabwe Revenue Authority.  

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