Final deduction tax regime to relieve taxpayers

NTSAU LEKHETHO

MASERU – The newly-introduced final deduction system of taxation is expected to speed up the refund process and reduce the time it takes employees to receive their tax refunds from the Lesotho Revenue Authority (LRA) or terminal benefits from employers at the end of their careers. Under the new regime of taxation, there will be rare cases in which the LRA will directly refund overpaid Pay As You Earn (PAYE).

Employers are expected to deduct employees’ contributions to self-provided superannuation funds over and above those made for provident and pension funds and employment related expenses before calculating PAYE for each period. It does not matter whether or not the self-provided retirement funds are resident or non-resident such as those made with South Africa’s Old Mutual or Sanlam.

Acting head of client education at the LRA, Letsatsi Sepiriti, told Public Eye on Tuesday this week that the new final deduction tax system would ensure the tax withheld by employers from employees’ remuneration would be correct without the need to re-assess the taxpayer by the taxman. “Previously, it took longer to refund taxpayers as the authority had to reassess the employee for allowable deductions, resulting in backlogs that took up to a year,” Sepiriti said.

“Under the final deduction tax system, it is the responsibility of each employee to inform the employer about the superannuation fund the employee possesses and unreimbursed employment related expenses incurred by the employee. “Therefore, the employee needs to provide the employer with documentary evidence or proof such as a superannuation fund contract and receipts substantiating expenses incurred by the employee.”

It means if an employer operates the fringe benefit tax system regime, the benefits provided to the employees that are included in calculations should not be included in the employees’ remunerations. The tax related to those benefits would have been paid by the employer. Otherwise, no deduction can be made from an employee or employer’s income expenses of a personal nature such as transport costs between home and work, general clothing and education leading to a formal qualification.

While earnings could include basic salary, salary arrears, bonuses, overtime, subsidies and travel allowance, deductions could include overpayment of salary, pension by employer, pension self-provided, car loan, medical aid, union fees and income tax. The employment related expenses are limited to: travel, education, motor vehicle, technical, trade books and journals, subscriptions to associations and home office. The employee is entitled to deductions for expenses incurred only in the production income.

Sepiriti said it was the obligation of the employer under the law to ensure the correct amount of tax was withheld from the employee’s remuneration and remitted to the LRA on time. However, he said there could be under or over payments of PAYE as a result of incorrect calculations on the part of the employer; omissions of items of income, benefits or deductions; use of wrong or outdated tax structure; and late publication of changes in the tax structure.

“The employer must clearly account for any adjustments or overpayments and ensure they are properly included in the periodic payslips as underpayments of PAYE lead to imposition of penalties by the LRA”, he said. Sepiriti said while the tax regime should shift the responsibility of tax administration burden from the LRA to the employers as they would have to readjust their payrolls, generally the new system of taxation set out how PAYE must be operated so that the correct amount of tax payable under the law was deducted.

“When this happens both the administration costs and compliance costs are reduced and kept at minimal levels,” he said. “The tax system guidelines do not cover all possible scenarios or circumstances and so where there is doubt, it’s the responsibility of both the employers and the employees to seek guidance and clarity from the LRA. We will ensure the periodic taxes are deducted and remitted by employers.”