How to calculate PAYE and claim any excess taxes
The Sunday Nation
Nairobi,
10 June 2012
After reading last week’s column, several readers have requested that I go over PAYE calculations again. The general feeling was that “nobody keeps newspapers from three years ago”! But out of all the responses, only one gave a specific problem and I will use it to illustrate the calculations.
The case is interesting in that the reader says that his employer is closing shop and as a result, he expects to be paid terminal dues totalling “Sh180,000 minus PAYE tax… much will be my PAYE…?”
For the purpose of easy reference, let me reproduce the tax brackets from last week: earnings up to Sh10,164 are charged at the rate of 10 per cent; from Sh10,165 to Sh19,740 the rate is 15 per cent; from Sh19,741 to Sh29,316 it goes up to 20 per cent; from Sh29,317 to Sh38,892 are charged 25 per cent; finally, for all earnings above Sh38,892, the rate applied is 30 per cent.
Now apart from the first bracket that is Sh10,164, all the others are Sh9,576. Thus the tax on our reader’s terminal dues will be calculated as follows: 10 per cent on the first Sh10,164 gives Sh1,016.40; 15 per cent on the next Sh9,576 gives Sh1,436.60. By this point we have accounted for Sh19,740.
20 per cent on the next Sh9,576 gives Sh1,915.20; 25 per cent on another Sh9,576 gives Sh2,394.00. So far we have worked the taxes on the first Sh38,892. From that point onwards, the tax rate is 30 per cent.
Now from Sh38,893 to Sh180,000 is range of Sh141,108. This whole amount is taxed at 30 per cent. That is, the PAYE on the last band is Sh42,332.40.
The next step is to add up the respective taxes from the different brackets; thus 1,016.40 + 1,436.60 + 1,915.20 + 2,394.00 + 42,332.40 = Sh49,094.60. Finally, we deduct the monthly personal relief of Sh1,162 to get the final PAYE. This comes to Sh47,932.60.
Therefore, the reader should expect a cheque of Sh180,000 – Sh47,932.60 = Sh132,067.40. Now that’s a big tax payment, isn’t it? However, if the reader can claim some of it back depending on how soon he gets another job and also on what his salary was between January and May this year.
Unfortunately, the reader hasn’t said what his salary was and we don’t know how long it will take to get another job – and even if he gets one immediately, we don’t know what pay he is likely to get.
But for the sake of illustration, let’s assume that his salary was Sh35,000 and that he will not get another job for the remainder of the year. Using calculations similar to those above, it turns out that his PAYE was Sh4,627. Thus in the first four months of 2012 he paid a total of Sh18,508 income tax. Adding the final Sh47,932 brings his annual tax payment to Sh66,440.
But tax is calculated on an annual basis, therefore we should find out his total earnings for the year and calculate the tax due. The combined income including the terminal dues is Sh320,000 and the annual tax on this comes to Sh32,112.
In other words, he is being overtaxed by Sh34,328! The good news is that he can claim this money back from KRA by simply filing a tax return next year. If doesn’t do that, then he will never get the refund!
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