Tax­a­tion of re­trench­ment pack­ages

Chronicle (Zimbabwe) - - Business -

A re­trench­ment pack­age is a pay off by an em­ployer to an em­ployee who has been laid off due to re­struc­tur­ing mak­ing the em­ployee’s po­si­tion re­dun­dant. It con­sti­tutes pe­cu­niary pay­ment or the of­fer of ma­te­rial ben­e­fits. A re­trench­ment pack­age may in­clude any or all of the fol­low­ing, sev­er­ance pay (cash), gra­tu­ity (cash) and other ma­te­rial ben­e­fits like mo­tor ve­hi­cles, ve­hi­cles, com­put­ers, fur­ni­ture and im­mov­able prop­erty (houses and build­ings).

Le­gal Pro­vi­sion Sec­tion 8 (1) of the In­come Tax Act [Chap­ter 23:06] de­fines what con­sti­tutes “gross in­come” and re­trench­ment pack­ages are brought into tax­a­tion un­der Sec­tion 8(1)(b). Sec­tion 73 of the same Act pro­vides for the pay­ment of em­ployee’s tax (in­clud­ing tax on re­trench­ment pack­ages) with­held by em­ploy­ers.

Ex­emp­tions Sec­tion 14 of the In­come Tax Act as read with para­graph 4 (p) of the Third Sched­ule to the same Act ex­empts the first US$10 000 or one-third of the first US$60 000, which­ever is the greater of the amount of any sev­er­ance pay, gra­tu­ity or sim­i­lar ben­e­fit re­ceived on ces­sa­tion of em­ploy­ment due to re­trench­ment, un­der a scheme ap­proved by the Min­is­ter re­spon­si­ble for Labour. The amount de­ter­mined as leg­is­lated will thus not be li­able to tax or in other words, will be ex­cluded from the tax­able in­come. Ap­pli­ca­tion for a Tax De­duc­tion Di­rec­tive On ter­mi­na­tion of em­ploy­ment, an em­ployer de­ter­mines the re­spec­tive re­trench­ment pack­age and ap­plies to Zimra for a tax de­duc­tion di­rec­tive in form NP4. The fol­low­ing in­for­ma­tion, in re­spect of the em­ployee re­ceiv­ing the re­trench­ment pack­age, should be care­fully and ac­cu­rately filled in by the em­ployer onto the ap­pli­ca­tion form: First name and sur­name

National iden­tity num­ber (which acts as the tax­payer iden­ti­fi­ca­tion num­ber, TIN)

Tax year (the pe­riod in which the re­trench­ment ac­crued or is paid) Na­ture of ben­e­fit

Amount of ben­e­fit (based on the open market value of the ben­e­fit or prop­erty of­fered as re­trench­ment)

Salary and al­lowance per an­num

The ap­pli­ca­tion form should be signed by both the em­ployer (or his rep­re­sen­ta­tive) and the em­ployee. Where the em­ployee is un­able to sign the ap­pli­ca­tion form, the em­ployer should in­di­cate this to Zimra and may sign on be­half of the em­ployee. The com­pleted ap­pli­ca­tion form should then be sub­mit­ted to Zimra for pro­cess­ing.

On re­ceipt of the ap­pli­ca­tion from the em­ployer, Zimra will check the cor­rect­ness and ac­cu­racy of the in­for­ma­tion on the form and its ac­com­pa­ny­ing at­tach­ments be­fore is­su­ing the di­rec­tive.

Pay­ment due dates Once a di­rec­tive has been is­sued, the em­ployer should re­mit the Em­ployee’s Tax on the 10th of the fol­low­ing month. Fail­ure to with­hold and late re­mit­tances/ pay­ments of Em­ploy­ees’ Tax con­sti­tutes an of­fence and at­tracts penal­ties and in­ter­est.

Our val­ued clients are in­formed that no fee is charged for the is­suance of tax di­rec­tives and are en­cour­aged to re­port to the po­lice any in­ci­dents of peo­ple pur­port­ing to be Zimra of­fi­cers and charg­ing any fees and in­volved in such cor­rupt prac­tices.

Dis­claimer: This article was com­piled by the Zim­babwe Rev­enue Author­ity for in­for­ma­tion pur­poses only. Zimra shall not ac­cept re­spon­si­bil­ity for loss or dam­age aris­ing from use of ma­te­rial in this article and no li­a­bil­ity will at­tach to the Zim­babwe Rev­enue Author­ity. To con­tact Zimra: What­sApp line: +263 782 729 862 Visit our web­site: www. Follow us on Twit­ter: @Zim­ra_11 Like us on Face­book: www.face­book. com/ZIMRA.11 Send us an e-mail: web­mas­ Call us (Head Of­fice): 04 –758891/5; 790813; 790814; 781345; 751624; 752731

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