WITHHOLDING TAX

* PAYE FINAL

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At the end of this session you will be able to:

i) understand the importance of PAYE as FINAL WITHHOLDING TAX ii) understand the PAYE FINAL WITHHOLDING TAX process iii) understand the responsibilities of an employer, employee and FRCA.
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PAYE FINAL WITHHOLDING TAX REASONING BACKGROUND AUTHORITY COMPARISONS ADDITIONAL INFORMATION

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The introduction of PAYE as FINAL WITHHOLDING TAX in 2013 is mainly because of the following reasons:

*INCREASING COMPLIANCE *EFFICIENT AND EFFECTIVE ADMINISTRATION

OF TAX

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Type Marital Child (($500 x 2) (300x3)) Elderly dependent ($200 x2) FNPF & Insurance Interest on mortgage 2011 $1,200 $1,900
$400

2012 $1,200 $1,900

$400

2013 Nil Nil

Nil

$1,500
$400
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$1,500
nil

Nil
Nil

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Type Marital Child (($500 x 2) (300x3)) Elderly dependent ($200 x2) FNPF & Insurance Interest on mortgage 2011 $1,200 $1,900
$400

2012 $1,200 $1,900

$400

2013 Nil $1,900

Nil

$1,500
$400
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$1,500
Nil

Nil
Nil

Chargeable Income $19,600.00

2011 Tax Paid 1,390.00

2013 Tax Paid 280.00

Tax Savings 1,110.00

% 396%

$20,100.00
$26,601.00 $50,000.00 $100,000.00 $150,000.00 $200,000.00 $250,000.00 $270,000.00

1,545.00
3,560.31 10,814.00 26,314.00 41,814.00 57,314.00 72,814.00 79,014.00

315.00
1,276.18 5,488.00

1,230.00
2,284.13 5,326.00

390%
179% 97% 70% 64% 62% 60% 60%

15,488.00 10,826.00 25,448.00 16,366.00 35,448.00 21,866.00 45,448.00 27,366.00 49,448.00 29,566.00
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Chargeable
Income

2011
Tax Paid

2013
Tax Paid

Tax Savings

$ 19,600.00 $ 4,930.00 $ 3,920.00 $ 1,010.00 $ 20,100.00 $ 5,081.00 $ 4,020.00 $ 1,061.00 $ 26,601.00 $ 7,096.31 $ 5,320.20 $ 1,776.11

26% 26% 33%

$ 50,000.00 $ 14,350.00 $ 10,000.00 $ 4,350.00

$ 100,000.00 $ 29,850.00 $ 20,000.00 $ 9,850.00 $ 150,000.00 $ 45,350.00 $ 30,000.00 $ 15,350.00 $ 200,000.00 $ 60,850.00 $ 40,000.00 $ 20,850.00 $ 250,000.00 $ 76,350.00 $ 50,000.00 $ 26,350.00
8 $ 28,550.00 $ 270,000.00 $ 82,550.00 $ 54,000.00

44%
49% 51% 52% 53% 53%

1. Employee :

CURRENT SYSTEM

*files declaration form (P1). *files tax return at the end. *receives an assessment showing either a refund or
tax payable.
2. Employer :

*deducts PAYE. *remits PAYE tax to FRCA on monthly basis. *submits P4 Annual Summary(manual/electronic) at
the end of the year and issues PAYE Employee Certificate (P4-1 slip) to the employee.
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Current Process Flowchart

One-off declaration

Annual Certificate

NOA Yearly return

Monthly remittance

Annual Summary Report

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PAYE FINAL WITHHOLDING TAX SYSTEM

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1. PAYE will be a final withholding tax on Total Employment income for most employees.

What is PAYE FINAL WITHHOLDING TAX?

2. Employers will be responsible in:

Deducting/remitting the correct PAYE. Submitting Employer Monthly Schedules. 3. Majority of Employees will not be required to lodge returns.

4.Very minimal refunds at the end of the year.

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BACKGROUND
2004- PAYE as a final withholding tax was first mooted.

2011- Around 65,000 taxpayers lodged Form S.

2012 (i) PAYE study team visited Malaysia and PNG to study and research international models. (ii)Government has reduced the tax bracket for: Employees PAYE rate from 31% to 20%; Employers Corporate rate from 28% to 20% in view of the planned introduction of PAYE as FINAL WITHHOLDING TAX.
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AUTHORITY
The authority governing PAYE as FINAL WITHHOLDING TAX are 1. Proposed Income Tax Decree . 2. Income Tax (Employment) Regulations.

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PAYE-FINAL TAX Flowchart

Tax Code Declaration

Annual Return (if required) Monthly E/ report & PAYE Tax

Statement of Earnings (if required)

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PAYE FINAL WITHHOLDING TAX

1. EMPLOYEE TAX CODE DECLARATIONAll employees must provide a Employee Tax Code Declaration form to their employer containing the following:

* Tax Identification Number (TIN)

* Employee name & postal address

* Indicate Tax Code:
1. 2.
P -primary, S - secondary employment
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PAYE FINAL WITHHOLDING TAX

2. TIN(TAX IDENTIFICATION NUMBER)a) Employee must produce a TIN. b) No TIN, employee to follow the registration process. c) Misplaced TIN, request copy from FRCA. d) No TIN letter and completed Employee Tax Code Declaration form submitted to the employer, then (no-declaration rate) highest tax rate of 20% must be applied.

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PAYE FINAL WITHHOLDING TAX

4 . EMPLOYEE TAX CODESa) An employer will deduct tax at applicable rate if the employee indicates that it is their primary employment (Code P). b) An employer will deduct tax at the marginal rate of 20% if the employee indicates that it is their secondary employment (Code S). c) PAYE will apply to the gross amount of the following: Salary & Wages (including overtime pay), Directors fees, Management fees, Bonus, Cash Benefits

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PAYE FINAL WITHHOLDING TAX

3. CLASSIFICATION OF CODES
a) P means primary employment. b) S - secondary employment or

An annual return form must be furnished under the following circumstances: where two Primary codes (Code P) have been operating at the same time-Form S where business income is also derived-Form B An annual return form may be furnished, where an employee believes he/she is entitled to a refund due to: receiving redundancy or lump sum payments only employed for part of the year.
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PAYE FINAL WITHHOLDING TAX

5. EMPLOYER MONTHLY SCHEDULES. a) Employers pays PAYE Tax to FRCA on a monthly basis based on the declaration forms. Complete remittance advise form IRS350. b) Employers provide electronic/Manual report to FRCA containing information regarding gross income & PAYE deductions for all employees on monthly basis. c) Employers are still required to submit monthly summary to FRCA even if employees are earning below the threshold. d) Employers will no longer be issuing P4-1 slips to 20 employees at the end of the year.

PAYE FINAL WITHHOLDING TAX

6. Employer Obligation a) Register as a PAYE payer. b) Keep records to support the computation. c) Obtain from each employee their respective TIN & tax code (P or S). d) Deduct PAYE from employees each payday. e) Pay fringe benefit tax (FBT) if you provide your employees with fringe benefits (perks). f) Submit Electronic Employer Monthly Schedule. g) Remit PAYE deducted.
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FRCAs Obligations
7. FRCAs Obligations: a) Provide employers with the new Employers Monthly Schedule and Remittance Advice slips by 31st December 2012. b) Develop an Electronic reporting format that is user friendly. c) Provide employees with a system generated Statement of Earnings at the end of the year, if they are required or choose to complete an Annual Return.

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COMPARATIVE ANALYSIS
Current Practice Employee provides P1 Declaration Form to employer. Employer issues to employee a PAYE Certificate (P4-1) for submitting with Form S return. New Practice Implications Employee provides Employee Tax Employee must provide Code Declaration form IRS458A to correct tax code. employer. Employer does not provide employee with any PAYE Certificate. FRCA will keep a summary of all employer PAYE payments pertaining to each employee-allows generation of Statement of Earnings if employee is required or chooses to lodge an Annual return. Amended PAYE remittance slip.

Employer pays PAYE deducted from employees gross emoluments to FRCA on a monthly basis using remittance advice for all tax types.

Employer pays PAYE deducted from employees gross earnings to FRCA on a monthly basis using a PAYE remittance advice slip along with the Employer monthly 24 Schedule.

COMPARATIVE ANALYSIS
Current Practice Employer lodges PAYE Annual Summary & Issues PAYE Employee Certificate (P4-1). New Practice Employer lodges Employer Monthly Schedule form IRS421. Report to only reflect each employees Gross Pay & PAYE deducted. E/Filing applies irrespective of number of employees. Implications Facilitates timely reconciliations of PAYE deductions & remittances.

Employers with more than 50 employees lodge electronic PAYE reports.

Less compliance costs for the employer and more efficient processing by FRCA.

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COMPARATIVE ANALYSIS
Current Practice Salary & Wage and Investment Income declared in Form S return. New Practice & Tax treatment Form S may be required where salary and wage earner operates two primary tax codes (Code P) at the same time. Withholding tax on interest and dividends regarded as final & not required to be included in an annual return. Employer should account for PAYE as a final tax on these payments, when they are made. FRCA will still provide advice as to the tax treatment in each case in accordance with tax legislation. Implications Majority of Salary and wage earner will not be required to lodge Form S return. For two primary tax codes (P), CEO may also issue assessment. Taxpayers may have to lodge Form S as they may have been under/overtaxed during the year.

Redundancy/Lump Sum Payment Casesemployer deducts tax at source & employee declares these in Form S return.

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Returns Lodgment Status Changes:

Current Practice Salary & Wage and Business Income declared in Form B return. Employees having two jobs. Both Income declared in one Form S return but taxed at source on standard rate. New Practice & Tax treatment This will still apply for salary & wage earners who will still be deriving business income. Both categories of income will be taxed as a whole. First job will be taxed at standard rate, whereas second job will be taxed at higher rate if no declaration. Returns Lodgment Status Form B Returns will still be lodged to ascertain any under/over payment of tax. Form S Returns may still have to be lodged by these employees.

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Penalties & Offences

Penalties: Late Payment Penalty (Section 44 of TAD)

25% of PAYE amount unpaid.

Additional 5% on remaining unpaid tax for each month SRT & PAYE remain unpaid. Late Lodgment Penalty (Section 43 of TAD) 20% of PAYE of the amount tax payable under the return. Additional 5% on for each month EMS remain unlodged. or in any other case, for a penalty of $1, for each day of default. 29

Penalties & Offences

Offences: Employer is liable to a minimum fine of $10,000.00 or to maximum 12 months imprisonment or to both a fine and imprisonment for failing to file the Employer Monthly Schedule. (Section 49 of TAD)

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Penalties & Offences

Offences:
Employer is liable to a minimum fine of $15,000.00 or to maximum 12 months imprisonment or to both a fine and imprisonment on any of the following offences: Failure to keep adequate PAYROLL records. (Section 51 of TAD) Failure to allow authorised tax officials. (Section 54 of TAD) Failure to produce any books or records.(Section 36 of TAD)
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1.Mr.Satish Dip Phone: 324 3595 2.Mr.Epeli Naua Phone: 324 3505 3.Mr.Paula Savai Phone: 324 3509 4.Mr.Sailosi Nakelekelevesi Phone: 3243581

5.Mr.Rohit Pillay Phone:3243525

For Email : payefinal@frca.org.fj Website: www.frca.org.fj/Quick Links/PAYE As Final Tax

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Thank You Questions

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