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Income tax as the name denotes is a tax chargeable directly on a person’s taxable income. The direct taxation of income justifies the classification of income tax as a direct tax. Income tax is administered and enforced through the provisions of the Income Tax Act 1993 (as amended) and its Regulations.

Income tax is imposed upon all persons earning income, being:

 

  • Individuals (including, but not limited to, sole traders, employees, directors of companies, partners in partnerships, members of associations, individual beneficiaries of trusts, etc.);
  • Trustees;
  • Companies (including statutory corporations, and unincorporated associations and social clubs, but not including partnerships and trusts); and
  • Non-residents earning income in Lesotho.

 

Income tax is assessed annually, though it is withheld and/or collected periodically. For instance in the case of:

 

  • Pay As You Earn (PAYE): the tax is withheld and collected monthly while the assessment thereof is performed annually.

 

  • Corporate Income Tax (CIT) and Personal Income (PIT): the tax is collected quarterly while the assessment thereof is performed annually.

 

  • Fringe Benefit Tax (FBT): the tax is collected quarterly and the accounting thereof is performed annually upon submission of the income tax return by the employer paying the FBT.

 

  • Withholding Tax (WHT): the tax is collected monthly or whenever there has been tax withheld, and the accounting thereof is performed annually upon the submission of the income tax return by the payee or the person to whose income the WHT had been deducted.

 

Different tax types under the income tax regime are discussed comprehensively below.

Pay As You Earn (PAYE) is a tax charged by an employer from an employee’s earnings, then remitted to LRA. All natural persons are entitled a tax credit (which is a saving of tax) from their tax liability, the amount of which is reviewed annually by the Minister of Finance

Employment income is the total earnings of an employee that arise from an employment relationship. Total earnings refer to all income received by or credited in favor of an employee arising from an employment relationship.

Employment income includes the following: wages, salaries, bonuses, allowances, overtime payments, leave payments, commission, gratuity, supplementary pay, fees, severance pay and other income of similar nature. It may even be gifts by the employer or third parties that would otherwise not be given, but for the employment relationship. Find the guide on the attachments below

How is the employment income taxed?

Under the PAYE system, the amount of tax to be deducted from the employee’s remuneration or total earnings depends on the following:

  • The employees’ total earnings,
  • The applicable marginal tax rates,
  • Allowable deductions (e.g. Contributions to an approved pension fund, retirement annuity fund.)

Resident Individuals: marginal rates per annum –

1st M64, 200. 00 @ 20%,

excess @ 30%

less Tax Credit of M10, 080.00

Non-residents: standard rate – 25%

 

Tax Tables PAYE Tax Calculator
 

Is a tax that is charged on profits generated by the company and other corporate bodies in a given year of assessment. It is a direct tax administered under the income tax Act of 1993 (as amended).

Provisional Tax

This is tax paid ahead of the financial year end, usually/preferably in Two (quarterly) installments. This helps ease the burden of paying the taxes due as a lump sum at the end of the financial year, with the client adding a little more to his payment if he had been under assessed and where the taxpayer had been over assessed, a refund will be made. Find the guide on the attachments below

Advanced Corporation Tax (ACT):

This is a tax arising as consequence of distributions of dividends by a company and is not imposed on the company but on shareholders receiving such dividends. Find the guide on the attachments below

 

This is a tax imposed by the LRA on the employer, based on the employer’s fringe benefit taxable amount (the value of non cash benefits) afforded to the employee. A fringe benefit is any monetary or non-monetary benefit derived from employment that does not form part of an employee’s normal salary or wage.  Fringe benefits are also referred to as benefits in kind. In summary, fringe or benefits in kind refer to earnings, other than in cash, that are received or due to an employee by virtue of an employment relationship with the employer. If fringe benefits are received or enjoyed by an associate of an employee then FBT must be applied. Find the guide on the attachments below

 

 

This is money withheld by the payer from the Gross amount (before VAT) payable to the payee on services rendered; that is, the payer (withholding agent) makes payment to the payee, less the withholding tax deduction and remits such to the LRA. As a general rule, withholding taxes are levied on supply of services and are applicable to both resident and non resident suppliers. Find the guide on the attachments below for tax rates applicable to Withholding Taxes and DTA guide on Technical Services between Lesotho and South Africa