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Treasury speaks on tax free band

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KALULUMA—Employers were expected to make adjustments

The treasury has said that the recently proposed policy change in taxation regime would help advance principles of taxation.

The Ministry of Finance has since said the proposed increase in the tax free band from K45 000 to K100 000 would help freeing some disposable income to low earners.

Finance Minister, Felix Mlusu, announced the increase in the Pay as You Earn (Paye)-zero bracket when presenting the K2.19 trillion 2020/21 National Budget to Parliament on Friday.

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He said to minimise impact on the base for Personal Income Tax, the 15 percent middle bracket has also been removed.

The development has triggered debate in the public domain where some workers are thrilled with the move while others claim it disadvantages middle income employees earning just above K100, 000.

Sources who confided in The Daily Times said the decision to remove the 15 percent bracket was arrived at after revelations that government would lose over K80 billion of revenue by increasing the tax free band from K45,000 to K100,000.

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However, with the development, an employee with a gross salary of K200,000 a month whose Paye was K45,750 and a net pay of K154,250 will now be deducted K30,000 Paye and get a Net pay of K170,000.

In an interview Wednesday, Treasury spokesperson, Williams Banda, said government is cleaning the tax regime to ensure progressivity and ease of administration.

“Under the new regime, the tax (Paye) will be proportional such that the rate will increase when the taxable amount increases. The policy resonates with principles of taxation by being progressive, the K5000 that was taxed at 15 percent was regressive with the new thinking,” Banda said.

Tax expert who also sits as Senior Tax Consultant at EK Tax Consultants, Emmanuel Kaluluma, concurred with the idea saying the intention of taxation is to take from the haves to give to the have-nots.

He, however, was quick to point out that the tax regime should be applied from July 1, 2020.

“It is not our first time that the passing of the budget is done after the first month of the government fiscal year. The delay does not symbolise change of government financial year therefore tax measures especially tax rates start to take effect from first month of the fiscal year which is July 1 2020.

“What this means is that employees have been over deducted Paye for the first months before approval of the budget. The K100,000 rate of zero percent applies on 12 months of the year and employers were expected to make adjustments because they subjected to tax K55,000 at 15 percent instead of 0 percent,” Kaluluma said.

On the day of effecting the new regime, Banda said the effective date of the bill should be when it is passed by Parliament.

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