PowerPoint Presentation

1PAYE FINAL WITHHOLDING TAX 1OBJECTIVES2At 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

understand the responsibilities of an employer, employee and FRCA.

2OUTLINE3 PAYE FINAL WITHHOLDING TAX

REASONING

BACKGROUND

AUTHORITY

COMPARISONS

ADDITIONAL INFORMATION3REASONINGThe introduction of PAYE as FINAL WITHHOLDING TAX in 2013 is mainly because of the following reasons:

INCREASING COMPLIANCE

EFFICIENT AND EFFECTIVE ADMINISTRATION OF TAX

2012 Current PAYE Allowances5Type201120122013Marital$1,200$1,200NilChild (($500 x 2) (300x3))$1,900$1,900NilElderly dependent ($200 x2)$400$400NilFNPF & Insurance$1,500$1,500NilInterest on mortgage$400nilNil2013 PAYE ALLOWANCES6Type201120122013Marital$1,200$1,200NilChild (($500 x 2) (300x3))$1,900$1,900$1,900Elderly dependent ($200 x2)$400$400NilFNPF & Insurance$1,500$1,500NilInterest on mortgage$400NilNilTax Savings - 2013 PAYE Tax Rate Reduction (Resident Individual)Chargeable20112013Tax Savings%IncomeTax PaidTax Paid$19,600.00 1,390.00 280.00 1,110.00 396%$20,100.00 1,545.00 315.00 1,230.00 390%$26,601.00 3,560.31 1,276.18 2,284.13 179% $50,000.00 10,814.00 5,488.00 5,326.00 97% $100,000.00 26,314.00 15,488.00 10,826.00 70% $150,000.00 41,814.00 25,448.00 16,366.00 64% $200,000.00 57,314.00 35,448.00 21,866.00 62% $250,000.00 72,814.00 45,448.00 27,366.00 60% $270,000.00 79,014.00 49,448.00 29,566.00 60%7Tax Savings - 2013 PAYE Tax Rate Reduction (Non - Resident Individual)Chargeable20112013Tax Savings%IncomeTax PaidTax Paid $ 19,600.00 $ 4,930.00 $ 3,920.00 $ 1,010.00 26% $ 20,100.00 $ 5,081.00 $ 4,020.00 $ 1,061.00 26% $ 26,601.00 $ 7,096.31 $ 5,320.20 $ 1,776.11 33% $ 50,000.00 $ 14,350.00 $ 10,000.00 $ 4,350.00 44% $ 100,000.00 $ 29,850.00 $ 20,000.00 $ 9,850.00 49% $ 150,000.00 $ 45,350.00 $ 30,000.00 $ 15,350.00 51% $ 200,000.00 $ 60,850.00 $ 40,000.00 $ 20,850.00 52% $ 250,000.00 $ 76,350.00 $ 50,000.00 $ 26,350.00 53% $ 270,000.00 $ 82,550.00 $ 54,000.00 $ 28,550.00 53%8CURRENT SYSTEM1. Employee :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.

99EmployeeEmployerFRCAOne-off declarationAnnual Certificate Yearly return NOA Monthly remittanceAnnual Summary ReportCurrent Process Flowchart1010PAYE FINAL WITHHOLDING TAX SYSTEM11PAYE will be a final withholding tax on Total Employment income for most employees.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.12What is PAYE FINAL WITHHOLDING TAX?12BACKGROUND2004- 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.1313The authority governing PAYE as FINAL WITHHOLDING TAX are

Proposed Income Tax Decree .

Income Tax (Employment) Regulations.

14AUTHORITY14PAYE-FINAL TAX FlowchartEmployeeEmployerFRCATax Code DeclarationMonthly E/ report & PAYE Tax Annual Return (if required) Statement of Earnings(if required) 15

151. EMPLOYEE TAX CODE DECLARATION-

All 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:P -primary, S - secondary employment

16PAYE FINAL WITHHOLDING TAX16PAYE FINAL WITHHOLDING TAX2. TIN(TAX IDENTIFICATION NUMBER)-

Employee must produce a TIN.

No TIN, employee to follow the registration process.

Misplaced TIN, request copy from FRCA.

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.1717PAYE FINAL WITHHOLDING TAX4 . EMPLOYEE TAX CODES-

An employer will deduct tax at applicable rate if the employee indicates that it is their primary employment (Code P).An employer will deduct tax at the marginal rate of 20% if the employee indicates that it is their secondary employment (Code S).PAYE will apply to the gross amount of the following: Salary & Wages (including overtime pay), Directors fees, Management fees, Bonus, Cash Benefits1818PAYE FINAL WITHHOLDING TAX3. CLASSIFICATION OF CODESP means primary employment. 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.1919PAYE FINAL WITHHOLDING TAX5. EMPLOYER MONTHLY SCHEDULES.

Employers pays PAYE Tax to FRCA on a monthly basis based on the declaration forms. Complete remittance advise form IRS350.

Employers provide electronic/Manual report to FRCA containing information regarding gross income & PAYE deductions for all employees on monthly basis.

Employers are still required to submit monthly summary to FRCA even if employees are earning below the threshold.

Employers will no longer be issuing P4-1 slips to employees at the end of the year.

2020PAYE FINAL WITHHOLDING TAX6. Employer ObligationRegister as a PAYE payer. Keep records to support the computation.Obtain from each employee their respective TIN & tax code (P or S).Deduct PAYE from employees each payday.Pay fringe benefit tax (FBT) if you provide your employees with fringe benefits (perks).Submit Electronic Employer Monthly Schedule. Remit PAYE deducted.

2121FRCAs Obligations7. FRCAs Obligations:

Provide employers with the new Employers Monthly Schedule and Remittance Advice slips by 31st December 2012.

Develop an Electronic reporting format that is user friendly.

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.

2222COMPARISONSCOMPARATIVE ANALYSISCurrent PracticeNew PracticeImplicationsEmployee provides P1 Declaration Form to employer.Employee provides Employee Tax Code Declaration form IRS458A to employer.Employee must provide correct tax code.Employer issues to employee a PAYE Certificate (P4-1) for submitting with Form S return.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.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 Schedule.Amended PAYE remittance slip.2424COMPARATIVE ANALYSISCurrent PracticeNew PracticeImplicationsEmployer lodges PAYE Annual Summary & Issues PAYE Employee Certificate (P4-1).Employer lodges Employer Monthly Schedule form IRS421. Report to only reflect each employees Gross Pay & PAYE deducted. Facilitates timely reconciliations of PAYE deductions & remittances.Employers with more than 50 employees lodge electronic PAYE reports.E/Filing applies irrespective of number of employees.Less compliance costs for the employer and more efficient processing by FRCA.2525COMPARATIVE ANALYSISCurrent PracticeNew Practice & Tax treatmentImplicationsSalary & Wage and Investment Income declared in Form S return.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.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.Redundancy/Lump Sum Payment Cases-employer deducts tax at source & employee declares these in Form S 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. Taxpayers may have to lodge Form S as they may have been under/overtaxed during the year.2626Returns Lodgment Status Changes:Current PracticeNew Practice & Tax treatmentReturns Lodgment StatusSalary & Wage and Business Income declared in Form B return.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.Form B Returns will still be lodged to ascertain any under/over payment of tax.Employees having two jobs. Both Income declared in one Form S return but taxed at source on standard rate.First job will be taxed at standard rate, whereas second job will be taxed at higher rate if no declaration.

Form S Returns may still have to be lodged by these employees.2727ADDITIONAL INFORMATIONPenalties & OffencesPenalties: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.

2929Penalties & OffencesOffences: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)

3030Penalties & OffencesOffences: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)313132CONTACT US1.Mr.Satish Dip Phone: 324 35952.Mr.Epeli Naua Phone: 324 35053.Mr.Paula Savai Phone: 324 35094.Mr.Sailosi Nakelekelevesi Phone: 32435815.Mr.Rohit Pillay Phone:3243525For Email : payefinal@frca.org.fjWebsite: www.frca.org.fj/Quick Links/PAYE As Final Tax

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Thank You

Questions

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