Relief for workers as new PAYE cuts come into effect

Dar es Salaam. Salaried workers will start seeing relief in tax deductions towards the end of July 2020 which marks the beginning of new income tax rates.

The employees will save between Sh6,570 and Sh51,600 per month in payroll taxes depending on the size of the salary following the reduction of pay-as-you-earn (PAYE).

Last month, Parliament approved the 2020 Finance Act which, among other things, amended the income tax structure to provide what the government described as relief to employees.

The government adjusted the income tax brackets and increased the minimum threshold for employment income not liable to tax from Sh170,000 to Sh270,000 per month.

That means all those who receive Sh270,000 per month - and were charged Sh6,570 - will not be taxed, while other employees with higher salaries will also get relief.

The changes resulted in relief ranging from Sh6,570 to Sh51,600 per month, depending on the size of the salary. This will be reflected in the July payments – the first month in the current financial year.

For instance, an employee with a monthly gross salary of Sh520,000 will save Sh20,880 starting this month, while those receiving Sh760,000 will get a relief of Sh33,800 in the pay-as-you-earn stakes, according to calculations done using the new tax brackets.

The maximum monthly relief is Sh51,600 for a person with a monthly salary of Sh1.5 million and above.

The Trade Union Congress of Tanzania (Tucta) said the relief was welcome but it’s just the beginning of a broader set of demands it is pushing for workers.

“The government has done something and we are grateful,” said Tucta president Tumaini Nyamhokya.

“It’s a good start and shows the way but we are still engaging the government to see more changes regarding the payment of workers,” added Mr Nyamhokya.

“Ideally, we would want to see the tax rates for all workers in single digits although this seems difficult due to pressing demand of tax revenue to finance government operations. We also want the government to resume annual salary increments and I hope the government will consider it in the new financial year starting this July,” said Mr Nyamhokya.

PAYE has been quickly increasing in Tanzania with the National Bureau of Statistics indicating that its annual collection had reached Sh2.3 trillion in the financial year 2017/18, up from the Sh928.5 billion recorded in 2010/11.