An employee is a person who performs services for an entity under the direction and control of that entity for remuneration. Employees are levied tax in terms of the13th Schedule to the Income Tax Act (ITA). Employee’s tax on remuneration should be deducted by an employer. Every employer should withhold employees’ tax from all remuneration paid or payable to an employee who renders services in Zimbabwe during a tax year even if the employee is not a resident of Zimbabwe. Zimbabwe uses a system called final deduction system (FDS) for taxation of individuals in employment. The final deduction system implies that an employer has the responsibility to compute the tax due on his/her employees and in so far as the person receiving employment income throughout the year from one employer, such person will not be required to submit a return to ZIMRA for assessment. This is a PAYE final assessment system / final deduction system and requires no further assessment thereafter. The tax that the employer deducts is deemed final. However, in certain circumstances an individual may be expected to submit additional self-assessments to ZIMRA.
Individuals should be aware that in certain circumstances, they may be required to submit a supplemental evaluation or a separate assessment rather than relying exclusively on the Pay As You Earn (PAYE) system. This particularly applies when an individual has been employed by more than one employer in one year of assessment, left employment during the year or received pension as discussed below herein.
If an individual has worked for two different employers during a tax year, it is possible that both employers may not have deducted the correct amount of tax from their salary. This can lead to under or overpayment of tax. The Zimbabwean tax system is based on the principle of adding together all sources of income of a taxpayer into a single sum and applying a progressive tax rate table to determine the final tax liability of the taxpayer on assessment. A progressive tax rate system means that the more income is earned, the higher is the marginal tax rate and more tax is paid on assessment. By deducting PAYE every month, the employer is assisting a taxpayer to pay his or her tax liability, determined on assessment, in advance. When only one employer is involved, the total PAYE deducted monthly should be equal to the tax liability on assessment. Typically, this should result in no extra tax due on assessment. However, where more than one employer is involved, each of them deducts the correct amount of PAYE on only the salary they each pay. When all the sources of income are added together and the correct tax rate is applied this may result in an additional amount of tax or the vice versa to be paid on assessment. In such cases, it is necessary for the employee to submit a separate tax assessment to ensure that their overall tax liability is calculated accurately.
When someone leaves their employment during a tax year, their tax liability may change. It is possible that they might be due a tax refund or have additional tax obligations. This is particularly so because PAYE is calculated by determining the tax on a projected income for the year (called the annual equivalent) and then de-annualising the tax to determine the tax payable for the month. Technically, at any point in an assessment year, computation of PAYE is based on an annual projected figure of what would be the total annual earnings over 12 months based on the current remuneration levels. When one has to leave their job during the year, this will mean the projections over 12 months are no longer applicable hence filing a separate assessment allows individuals to reconcile their tax situation accurately and make any necessary adjustments.
If an individual has received a pension during the year in addition to their regular employment income, it is likely that their tax obligations will be more complex. Pension income is often taxed at different rates and might also impact other tax liabilities. Filing a separate assessment ensures that all income sources are considered correctly, minimizing the chances of any under or overpayment of tax.
In these scenarios, employees should be proactive and submit a separate assessment named the ITF1. Persons in receipt of income which solely consists of remuneration which has been subjected to employees’ tax (PAYE) are not required to furnish income tax returns. Exceptions include those who left employment during the course of the year, received income from more than one source or changed employers during the course of the year. ITF1 is the return for employment income to be completed by individuals on employment income. If the same individual is also receiving income from trade, investment or profession, the person will be required to complete another return called the IFT1A. Both these returns resemble a final assessment of one’s tax affairs where necessary. Just as with the final assessment for corporates, the ITF12C and ITF12C2, the ITF1 and ITF1A should also be submitted by the 30th of April of the year preceding the year being assessed. In addition, to the income tax assessment requirements, individuals need not forget the same obligations apply where they have disposed of specified assets for which Capital Gains Tax (CGT) is applicable. It is important to be aware of these requirements to avoid potential penalties or incorrect taxation.