THE MONTHS of July to August are usually marked with the introduction of secondary and tertiary level graduates into the nation's workforce. These bright energetic young people are sometimes left in a state of confusion upon receiving their first payslip and discovering that their salaries are not what they were expecting. This is of course due to tax deductions and contributions.
It is important for taxpayers to understand the various taxes and contributions levied, how they are calculated and the importance of paying these taxes and contributions. Taxpayers should also be made aware that there are benefits to be derived from paying their fair share of taxes.
Taxation is the major source of Government revenue, it is used to exercise an overall control of the economy, promote economic growth, modify and influence price mechanisms and essential services for its citizens in areas of health care, job placement, and maintenance of basic national infrastructure (roads, buildings etc).
Employed persons are subject to payroll deductions in respect of their salaries or wages for: Income Tax, Education Tax, National Housing Trust (NHT), and National Insurance Scheme contributions. For employed persons income tax is paid on the PAYE system (Pay - As You - Earn). On July 1, 2005 the threshold was increased to $169,104 and will further increase on January 1, 2006 to $193,440. For employed persons with no other source of income, the amount on which the income tax is calculated at a rate of 25 per cent is gross pay net of NIS and the income tax threshold.
Education tax is used to advance the nation's educational goals; the taxes collected go into a Consolidated Fund to be used as the need arises. This tax is calculated by deriving two per cent of gross pay less NIS.
The other statutory deductions are National Insurance Scheme (NIS) at 2.5 per cent of gross up to a ceiling of $500,000 and National Housing Trust (NHT) at a rate of two per cent of gross pay. However, these statutory deductions are considered contributions not taxes. NIS offers protection to workers and their family against loss of income arising from injury on the job, incapacity, retirement, and death of the contributor. NHT provides housing benefits for qualified contributors and is refundable after seven years of contributing (in the eighth year).
Below is an example of salary deductions for Mr X:
Gross weekly pay $10,000.00
Less NIS (2.5%) $240.38
$9759.62
Less pension contribution $600.00
$9159.00
Taxable amount $5907.62
Income tax @ 25% $1476.90
Education tax 2% ($9759.62 X 2%) $195.19
Gross pay less NIS
NHT (2%) of gross pay $200.00
Net salary (after taxes) $7887.53
