adminDid you know that the Pay as You Earn system was introduced in 1966? Its aim was to benefit the country by ensuring a steady and constant flow of revenue to the Government. It also enabled the employees to spread the payment of tax over a period of 12 months. Under that system, all employers administered the PAYE system, but at the end of the tax year, the Tax Department would assess the same PAYE to account fr income tax variances (i.e. shortfalls and refunds).
This system resulted in the duplication of similar processes and a lot of resources were therefore tied up in assessing the final tax liabilities. The Final Deduction System was introduced with effect from January 1, 2000 to overcome the problems associated with the PAYE system.
What is the Final Deduction System?
This is a system whereby the employer is directed to withhold Employees Tax (PAYE) from the employee’s remuneration in such a way as to ensure that the amount so withheld in any year of assessment is as nearly the same as the income tax liability that is expected from the employee concerned.
Who qualifies to be on FDS?
The Commissioner-General of Zimbabwe Revenue Authority may direct any employer who pays out remuneration to employees to be on FDS.
Advantages of implementing the FDS system?
1) Accuracy is achieved in calculating PAYE, as the system calculates the correct amount of tax at a given time. 2) Tax refunds are done promptly, within the payroll system therefore allowing employees to use their resources as the year progresses. 3) Deductions and credits are allowed as they are claimed during the year. 4) Reduction of visits to the tax offices and reduced tax returns. This creates savings in resources from both the Revenue Authority and the employee perspectives.
How does FDS work?
FDS aims at ensuring that PAYE to be withheld in any year of assessment is the same as the final Income Tax liability for the employee concerned. In addition, under this system, the employee whose income consists solely of employment income will not submit returns after the end of the year if employed by one employer throughout the year.
Under the FDS system, the employer continuously calculates the cumulative tax liability on the total remuneration as it is paid to the employee. The employer is required to deduct PAYE according to the PAYE tax deduction tables availed by Zimra.
There are two main recommended methods of calculating PAYE under the FDS system namely the forecasting and averaging methods. These methods are described and explained in the FDS guide available on the Zimbabwe Revenue Authority website www.zimra.co.zw. It should, however, be noted that the employer is not restricted to one method of calculating PAYE and is free to use any which achieves better results and best suited to their circumstances and systems.
The FDS system, however, works better under a computerised payroll system.
It should, however, be noted that the employer should ensure that all remuneration paid is taken into account before calculating PAYE. In addition, they have to factor in all allowable deductions, exemptions and credits where possible in order to eliminate any possible underpayments of PAYE.
The employer should also ensure that under payments and over payments of PAYE are effected through the payroll as guided.
Does the employer need to know the other sources of the employee’s income?
The employer is not obliged to know the employees “other source of income”. However, the employees can voluntarily declare other employment income including pension if they wish to have it taken into account when calculating the tax liability.
Who should submit income tax return forms under FDS?
The employees who: a) terminate employment during the year of assessment. b) change employment during the year. c) work part- time at the same time being fully employed by another employer. d) start employment during the course of the year. e) receive pensions. f) are executors/ executrix of deceased estates. g) are in receipt of income which is not subject to PAYE.
In all the above stated cases, the employer should issue employees tax certificates (P6 forms) to such employees to enable them to complete income tax returns.
Who should not submit returns of income?
All those employees whose income consists of employment income only and whose employer was directed to administer PAYE under the FDS system and did so during the year concerned, and the employee was in continuous employment with the same employer for the whole year.
Our valued clients are advised to approach the nearest Zimra office for the treatment and taxation of any specific transactions/remuneration should they need clarification.
Employee’s rights and obligations under FDS
Employees have rights and obligations to:-
1) Have their credits and deductions taken into account in determining their PAYE liabilities; 2) Be issued with forms P6 at the end of the year or on leaving employment during the year; 3) Furnish their employers with information on other income and proof of deductions and credits; 4) Have their PAYE correctly calculated, and 5) Be refunded excess PAYE and pay PAYE shortfalls after final adjustment
· What are the employer’s rights and obligations under FDS?
- Calculate and deduct correct PAYE for each employee
- Take into account all income, deductions, and credits in determining PAYE liabilities
- Remit the total PAYE to the Commissioner General of ZIMRA by the 10th of the month following the month for which PAYE is withheld
- Make end of year adjustments for PAYE
- Issue tax certificates for all employees
- Maintain and furnish all relevant employee’s records to revenue officers
- Make good any shortfalls and refund excess PAYE to employees
- Ensure that the ZIMRA Commissioner General’s directive is available for inspection at all reasonable times by any employee who may be affected by it
- Receive adequate training on FDS from the nearest ZIMRA office
- Facilitate education of employees on FDS, and
- Be supplied with all relevant forms on FDS by the nearest ZIMRA office
- What are the obligations of ZIMRA under FDS?
- ZIMRA is obliged to:-
- Assist employers and employees on FDS
- Assist employers and employees on any queries on time
- Assist in the smooth implementation of FDS, and
- Provide all the necessary forms
- Encouragement
- 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. To contact ZIMRA: Visit our website : www. zimra.co.zw; Follow us on Twitter: @Zimra_11; Like us on Facebook: www.facebook.com/ZIMRA.11; Send us an e-mail: [email protected]; Toll-Free Integrity Hot-Line: 0800 4147 or 0800 4185; Call us (Head Office): 04 –758891/5; 790813; 790814; 781345; 751624; 752731.
Online Reporter