What is PAYE (Pay As You Earn)?

PAYE stands for Pay-As-You-Earn. It is the method of collecting Income Tax from employees on their earnings. Under this system, an employer is required by law to deduct income tax from an employee’s taxable salary or wages. It could be weekly, fortnightly or monthly hence the name Pay As You Earn.

PAYE Calculation Slab

PAYE income tax calculation is based on the tax slab split income wise. It’s a progressive slab system. Employees with higher wages are obliged to pay more than the employees who earn less. The total taxable income of employee is split in brackets as defined in the slab (0- 4,000.00 | 4,000.01-4,800.00 etc). Amount applicable in each tax bracket attracts the corresponding percentage of tax and the total is summed at last the tax liable. The Malawi Revenue Authority has announced that the Taxation (Amendment) Act has been gazetted. The Eleventh Schedule to the Taxation Act has the following amended tax table for PAYE:


Calculation of PAYE

  • Gross Income = Basic Salary + Allowances + Commissions + Other Emoluments
  • Taxable Income = Gross Income – all deductions/exemptions allowed by law

  • Taxable income obtained after step 2 must be applied to the tax slab.
  • Total PAYE tax = Sum of the marginal taxes from step 3
  • Tax Payable = Total PAYE

Advantages of PAYE to taxpayers

  • It is convenient to pay while the money is available.
  • It is easy and cost effective to pay.
  • Affords the taxpayer to pay by instalments other than having the burden to pay a lump sum.
  • Where an employer discharges the liability of an employee by paying his/her rent, electricity, telephone, water bills, school fees or professional association fees, club membership fees and similar payments, the employer is required to add such payments to the employees emoluments and deduct tax under PAYE.

Withholding Tax

Withholding Tax is not a tax but a means of collecting that tax. Withholding Tax is deductible from a payment by the person who is liable to make payment (the payer) at the point in time the person to whom it is due to be made (the payee) becomes legally entitled to it (date of accrual). The payer is required to pay the tax deductible to the Zambia Revenue Authority by reference to the date of accrual no matter how, when or where payment is made.

Benefits not subjected to PAYE:

Labour day Awards
Ex-gratia payments
Medical expenses
Funeral expenses
Sitting allowances for councillors
Benefits that cannot be converted into cash such as free residential housing provided by the employer, canteen expenses and personal to holder cars.

Value Added Tax(VAT)

By its nature, Value Added Tax is incurred by the final person in the chain of supply who is not registered for VAT. Persons registered for VAT will claim back, through the return, the input VAT incurred in the course of their business, and remit to Zambia Revenue Authority, the Output VAT collected in excess of their input VAT. Therefore, registered suppliers do not pay VAT.

STANDARD RATED SUPPLIES: These are supplies that attract VAT at the prescribed standard rate 16%.

ZERO RATED SUPPLIES: These are supplies that attract VAT at 0%.

EXEMPT SUPPLIES: These are supplies that do not attract any VAT at all.

Download Zambia Payroll Software for PAYE calculation!