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Pay As You Earn

Pay As You Earn

Pay As You Earn (PAYE) is a method of collecting Income Tax from employees on their earnings. Deduction is done by the employer when the payments are made. It could be weekly, fortnightly or monthly hence the name Pay as You Earn.

During the 2017/18 budget presentation, the Government announced new tax measures relating to PAYE that become effective on 1st July, 2017. For example, the Government announced that the tax free income bracket had been increased from K20, 000 per month to K30, 000 per month. The Government also introduced an additional bracket of 35 percent on any employee whose salary is above K3 million.

This means that any employee whose emoluments are in excess of K30, 000 per month or K360, 000 per year is liable to be deducted PAYE. Furthermore, those people whose salaried income is more than K3 million would be liable to a 35 percent PAYE bracket.

For instance, if an employee receives a gross salary of K200, 000 per month, his or her tax will be calculated as follows: first K30, 000 taxed at 0 percent equals K0.00; next K5, 000 taxed at 15 percent equals K750 and the excess of K165, 000 taxed at 30 percent is equal to K49, 500. The total tax payable is K0.00 + K750 + K49, 500 which is K50, 250.00.  

If one were earning K3, 500, 000 per month, tax would be deducted as follows: first K30, 000 taxed at 0 percent equals K0.00; next K5, 000 taxed at 15 percent equals K750 and the excess of K2, 965, 000 taxed at 30 percent is equal to K889, 500.

However, since the salary is more than K3, 000,000, it would be liable to a 35 percent PAYE bracket. This means that the extra K500, 000 would be taxed at 35 percent which is equal to K175, 000. The total tax payable is K0.00 + K750 + K889, 500 + K175, 000 which is K1, 065, 250. Please, note that PAYE for January 2018 is payable by Sunday 14th January, 2018. Happy New Year.   

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