Income tax as the name denotes is a tax chargeable directly on a person’s taxable income. The direct taxation of income justifies the classification of income tax as a direct tax. Income tax is administered and enforced through the provisions of the Income Tax Act 1993 (as amended) and its Regulations.

Income tax is imposed upon all persons earning income, being:

 

• Individuals (including, but not limited to, sole traders, employees, directors of companies, partners in partnerships, members of associations, individual beneficiaries of trusts, etc.);

• Trustees;

• Companies (including statutory corporations, and unincorporated associations and social clubs, but not including partnerships and trusts); and

• Non-residents earning income in Lesotho.

 

Income tax is assessed annually, though it is withheld and/or collected periodically. 

 

Different tax types under the income tax regime are discussed comprehensively below.

Pay As You Earn(PAYE)

Pay As You Earn (PAYE) is a tax charged by an employer from an employee’s earnings, then remitted to RSL. All natural persons are entitled a tax credit (which is a saving of tax) from their tax liability, the amount of which is reviewed annually by the Minister of Finance

Employment income is the total earnings of an employee that arise from an employment relationship. Total earnings refer to all income received by or credited in favor of an employee arising from an employment relationship.

Employment income includes the following: wages, salaries, bonuses, allowances, overtime payments, leave payments, commission, gratuity, supplementary pay, fees, severance pay and other income of similar nature. It may even be gifts by the employer or third parties that would otherwise not be given, but for the employment relationship. 

Calculation of Tax Payable

The tax payable is calculated in three simple steps below:

• First, the tax liability is calculated by applying the tax rates indicated above on the chargeable income of the individual and add the two results.

• Second, the sum of the tax liability determined in the first step above is reduced by the tax credit (M10, 824.00 per annum or M902.00 per month); i.e. total tax liability less tax credit.  

• Third, the positive difference between the tax liability and the tax credit is the tax payable by the resident individual. Where the difference is negative or nil, the income is considered nontaxable. The negative or nil outcome results from the application or allowance of non-refundable tax credit and does not imply the tax refund to the individual in the case of the negative outcome; it only means that the income is not taxable.

 

The Resident Individuals PAYE is calculated by applying marginal rates of 20% to the first M69, 120.00 and 30% to the excess. Tax credit of M10, 824.00 is then deducted 

1st M69, 120.00 @ 20%,

excess @ 30%

less Tax Credit of M10, 824.00

Non-residents: standard rate – 25%

Pay As You Earn (PAYE): the tax is withheld and collected monthly while the assessment thereof is performed annually. Find the guide on the attachments below
 

Tax Tables PAYE Tax Calculator

 

Corporate Income Tax

Is a tax that is charged on profits generated by the company and other corporate bodies in a given year of assessment. It is a direct tax administered under the Income Tax Act of 1993 (as amended).

Provisional Tax

This is tax paid ahead of the financial year end, usually in three (quarterly) installments. This helps ease the burden of paying the taxes due as a lump sum at the end of the financial year, with the client adding a little more to his payment if he had been under assessed and where the taxpayer had been over assessed, a refund will be made.  

Advanced Corporation Tax (ACT):

This is a tax arising as consequence of distributions of dividends by a company and is not imposed on the company but on shareholders receiving such dividends. 

Corporate Income Tax (CIT) and Personal Income Tax (PIT): the tax is collected quarterly while the assessment thereof is performed annually. Find the guide on the attachments below
 

Fringe Benefits Tax (FBT)

This is a tax imposed by the LRA on the employer, based on the employer’s fringe benefit taxable amount (the value of non cash benefits) afforded to the employee. A fringe benefit is any monetary or non-monetary benefit derived from employment that does not form part of an employee’s normal salary or wage.  Fringe benefits are also referred to as benefits in kind. In summary, fringe or benefits in kind refer to earnings, other than in cash, that are received or due to an employee by virtue of an employment relationship with the employer. If fringe benefits are received or enjoyed by an associate of an employee then FBT must be applied.

Fringe Benefits Tax (FBT): the tax is collected quarterly and the accounting thereof is performed annually upon submission of the income tax return by the employer paying the FBT. Find the guide on the attachments below

Withholding Tax (WHT)

This is money withheld by the payer from the Gross amount (before VAT) payable to the payee on services rendered; that is, the payer (withholding agent) makes payment to the payee, less the withholding tax deduction and remits such to the LRA. As a general rule, withholding taxes are levied on supply of services and are applicable to both resident and non resident suppliers.

Withholding Tax (WHT): the tax is collected monthly or whenever there has been tax withheld, and the accounting thereof is performed annually upon the submission of the income tax return by the payee or the person to whose income the WHT had been deducted.

Find the guide on the attachments below for tax rates applicable to Withholding Taxes and DTA guide on Technical Services between Lesotho and South Africa