Pay As You Earn (PAYE) is the method of collecting Income Tax from employees on their earnings. The employer deducts PAYE when the payments are made. It could be weekly, fortnightly or monthly hence the name Pay As You Earn.
Any employer who pays an employee in excess of K100, 000 per month or K1, 200, 000 per year is liable to deduct PAYE and remit to MRA.
With effect from 1st October 2020, the rates used to charge income tax are as follows:
1. Rates of income tax other than remuneration (Business)
2. Rates of income tax on remuneration (Employment)
Any employer who employs people whose earnings are in excess of K100, 000 per month or K1, 200, 000 in a year, is required to register.
Upon registration, MRA will supply the employer with registration forms (Form P1) where all the details concerning the employer are filled.
You will also be supplied with Form P4 where all details for the employee are filled.
The employer is also required to indicate the number of employees who are eligible for PAYE within a period of 21 days after becoming an employer.
In case of changes, for example, an employee has resigned, the employer is required to communicate to MRA within 14 days upon making those changes.
MRA will also give the employer Form P12. This is a monthly payment form that should always accompany any PAYE payments to MRA every month.
Usually, a booklet of 12 copies of Form P12 is supplied to the employer to cover a period of one fiscal year.
The name of the organisation
The deduction of PAYE from an employee’s earnings becomes due at the time when earnings are given to employee.
The amount of tax deductable should be remitted to MRA not later than the 14th day from the end of the month during which the tax was deducted. Payment can made through cash, bank certified cheque, or direct electronic transfers
If an employee receives a gross salary of K200, 000.00 per month his/her tax will be calculated as follows:
Taxable Income Rate
Total K200, 000.00
First K100, 000.00 0% =0.00
Balance K100, 000.00
Tax on K100, 000.00 30% =K30, 000.00
Total tax payable is K0.00 + K30, 000.00 = K30, 000.00
Gross salary Tax payable Net salary
K200, 000.00 K30,000.00 K170, 000.00
NOTE: “Remuneration” means any amount of taxable income which is paid or payable to an employee as salary, leave pay, an allowance, wages, overtime pay, a bonus, a gratuity, a commission, a fee, an emolument, pension, superannuation, a retiring allowance or a stipend, whether in cash or otherwise.
The Malawi Government introduced an additional bracket of 35 percent on any employee whose salary is above K3 million. If one were earning K3, 500, 000 per month, tax would be deducted as follows:
Taxable Income Rate
Total K3, 000, 000.00 -
First K100, 000.00 0% = K0.00
Balance K2, 900, 000.00
Tax on K2, 900, 000.00 30% = K870, 000.00
Since the salary is more than K3, 000,000, it would be liable to a 35 percent PAYE bracket. This means that the next K500, 000 would be taxed as follows:
Excess Rate Tax
K500, 000.00 35% K175, 000.00
Total tax payable is K0.00 + K870, 000.00 + K175, 000.00 = K1, 045, 000. 00
Gross salary Tax payable Net salary
K3, 500, 000.00 K1, 045, 000.00 K2, 455,000.00
Any employer who fails to remit or register their employees who are eligible for PAYE would be asked to: Pay all taxes due from the time he/she would have registered their employees plus 20% penalty of the taxes defaulted for the first month and a further sum of 5% per month or part thereof for the period during which the amount of the tax remains unpaid.
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