Confusion reigns in flurry of directions taxing workers
A flurry of directives issued by the Inland Revenue Department (IRD) between January and April 2020, with regard to income tax –some of which have created utter confusion –, has resulted in tax—paying workers scratching their heads in disbelief.
The confusion has arisen after the government announced suspending the PAYE (Pay-as-you-Earn) tax in January, at the same time raising the taxable limit where taxable employees have to file their own returns, and then introducing a new tax structure in April called Advance Personal Income Tax (APIT) in which taxes can be deducted from the salary by the employer, or file their own returns.
To add to the chaos, while APIT is applicable from April 1 onwards, the IRD then directed that PAYE should be deducted from all from January to March – three months – at the old rates in one go and deducted in the May salary, which means that PAYE has been re-imposed contrary to the January decision suspending it.
The sequence of directions were as follows:
- In a public notice issued on February 5, 2020, the IRD Commissioner General (CGIR) instructed employers not to withhold income tax (PAYE) from employment income under Section 83 of the Inland Revenue Act, with effect from January 1, 2020.
- Following this notification, PAYE has not been deducted from employment income for the period January to March; several CFO’s told the Business Times.
- At the same time, a directive was issued increasing the taxable threshold for all public and private sector employees to Rs. 250,000 from Rs. 100,000 per month (earlier), at progressive rates of 6 and 12 per cent for every tax slab of Rs. 250,000 and the balance at 18 per cent. This has reduced the number of tax-paying employees bringing down the number of tax files considerably.
- However, this position has been changed as per the public notice issued by the CGIR on April 15. In this notice, the respective employers have been asked to once again deduct PAYE tax from employees for the period January to March, in one go –as this tax had not been deducted for these three months under the earlier direction.
- At the same time, a new tax – the Advance Personal Income Tax (APIT) – was introduced replacing PAYE with effect from April in which deductions can be made from the employees’ salary on the earlier announced taxable level of Rs.250,000 and above. Employees were given the option of requesting their employers to deduct the tax from their salary or file their own returns.