Page 93 - Accountancy_F5

(c) Gross pay
Gross pay = Basic pay + Allowances
From the given data, Gross pay = Basic pay + Overtime payment
= 1,200,000 + 360,000 = TZS 1,560,000

Calculations of various deductions from employee’s pay
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Payroll accounting is significantly influenced by legislation enacted by governments.
These laws affect payroll accounting because they charge taxes based on payroll amount
and they extract statutory contribution by both employer and employees based on payroll
figures. Thus, the calculation of payroll involves the determination of gross pay, followed
by the subtraction of deductions and payroll taxes to arrive at net pay. Payroll deductions
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are classified as statutory deductions and voluntary deductions.

Statutory deductions
In Tanzania, these are deductions governed by the law enacted by the parliament.
Examples; Tax deductions i.e. Pay As You Earn (PAYE), National Social Security Fund
(NSSF), Public Service Social Security Fund (PSSSF) and National Health Insurance
Fund (NHIF).

PAYE
PAYE is an abbreviation that stands for “Pay As You Earn”. It was enacted by the
parliament in the income tax act of 1973 and inherited by the income tax act of 2004.
However, every year the government is reviewing it to assess the amount to be charged
as PAYE Tax. PAYE is a tax levied (charged) on monthly income of employees. Monthly
income for the purpose of PAYE will be gross pay reduced by earning which are not
taxable. The tax rates are progressive, meaning that the more income you earn the more
the PAYE. Each financial year the monthly income tax table is published by Tanzania
Revenue Authority (TRA) which is a guide for employers to compute PAYE of employee
during the preparation of monthly payroll. Table 3.1shows residents individuals income
tax schedule for the year 2023/2024.

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