- What is PAYE?
- Main Characteristics
- Income Exemption Threshold
- Calculation and withholding of tax
- Method of calculating chargeable income and tax to be withheld
Pay As You Earn (PAYE) is a system whereby employers are required to withhold tax from the emoluments of employees chargeable to tax at the time the emoluments are received by or made available to the employees. The tax withheld is then remitted to the Mauritius Revenue Authority (MRA) every month.
A new cumulative PAYE System has been introduced as from 1 July 2006 to replace the non-cumulative system. This new system aims at ensuring that the amount of tax withheld under PAYE for each month in a year corresponds exactly to the amount of tax payable on total emoluments derived in that year.
The main characteristics of the cumulative PAYE system are:
- Employees drawing monthly emoluments not exceeding Rs 20,800 are not affected by PAYE.
- Workers receiving their pay daily after each day’s work are excluded from the operation of the PAYE system.
- The PAYE system operates on the pay for the current period at the time the emoluments are received by or made available to the employee.
- The amount of tax to be withheld from the emoluments of each pay period is calculated on a cumulative basis by cumulating both the emoluments and the Income Exemption Threshold pertaining to the current and previous pay periods in the income year concerned.
- Employees have to furnish every year to their employer a PAYE Employee Declaration Form (EDF) claiming the Income Exemption Threshold to which they are entitled in an income year. An individual is entitled to the Income Exemption Threshold which corresponds to the category he falls in as hereunder indicated :
- Category A individual with no dependent 270,000
- Category B individual with 1 dependent 380,000
- Category C individual with 2 dependents 440,000
- Category D individual with 3 dependents 480,000
- Category E Retired person with no dependent 320,000
- Category F Retired person with 1 dependent 430,000
In order to qualify for Category E and F deduction above, the retired person should have attained the age of 60 before 1 January of the current income year and should derive solely income from employment (i.e. excluding any business, trade / profession or other income).
"Dependent" means either:
- a spouse;
- a child under the age of 18; or
- a child over the age of 18 and who is pursuing full-time course at an educational institution or a training institution or who cannot earn a living.
- Threshold claimed by an employee in his EDF to calculate the amount of tax to be withheld under the system.
- Arrears of emoluments earned in an income year but received by a person in the following or any subsequent income year will be deemed to have been earned in the income year in which they are received.
Every employer should, at the time emoluments are received by or made available to his employees, withhold tax from those emoluments by reference to the chargeable income of the employees.
Refer to Guide on Pay As You Earn
The amount of tax to be withheld should be in whole rupees. Cents should be left out.
The method to calculate the chargeable income and arrive at the amount of tax, if any, to be withheld by the employer from the emoluments of his employees is described below:
1. Where the employee is paid monthly, the amount of tax to be withheld for the first month of the income year, i.e. January, is calculated as follows:
- Deduct 1/13 of the Income Exemption Threshold claimed in the EDF from the total emoluments to obtain the chargeable income for the month of January;
- Apply the rate of 15 per cent on the chargeable income calculated at "1". This sum represents the tax to be withheld for January.
2. For calculating the amount of tax to be withheld in any of the subsequent months i.e. February to December, the following steps should be followed:
- Aggregate the emoluments derived for period starting 1 January of the income year up to and including the current month’s emoluments on which tax has to be calculated (say May);
- Aggregate the fractions of Income Exemption Threshold allowable for the months of January to May; (1/13 x 5 i.e. 5/13 of Income Exemption Threshold as per EDF)
- Calculate the difference between the results at "1" and "2" above to arrive at the chargeable income (cumulative chargeable income) for that period;
- Apply to the result at "3" above the rate of 15 %.This will represent the total tax required to be withheld for the months of January to May (cumulative PAYE for that period);
- Deduct from the sum arrived at "4" above the total amount of tax already withheld in the preceding months of the income year to arrive at the amount of tax to be withheld for the month of May;
The same principle as described above for withholding tax under the new Cumulative PAYE system will apply to fortnightly paid or weekly paid employees, except that in such cases the fraction of Income Exemption Threshold (claimed by the employee in his EDF) to be taken into account in respect of each pay period will be 1/28 and 1/56 respectively.