Employees across Tanzania grapple with income deductions that can account for four to almost seven months of their annual income. Many have complained about this phenomenon, but it has been treated more like a mystery than a reality.
Using data from the Tanzania Revenue Authority (TRA), this article aims to unravel the mystery behind these deductions and shed light on this often-overlooked aspect of financial planning.
Income deductions in Tanzania are primarily composed of three elements: Pay As You Earn (PAYE), contributions to the National Social Security Fund (NSSF), and repayments to the Higher Education Loans Board (HELB) for those benefited from the higher education students’ loans scheme.
Let’s break down these deductions for different income groups:
Group 1 (Gross Income: Sh270,000 – Sh520,000): Employees in this group lose about 3.4 months of their income to deductions, with almost one month going to PAYE, 1.2 months to NSSF, and 1.8 months to HELB.
Group 2 (Gross Income: Sh520,000 – Sh760,000): These employees lose about 3.4 months of their income to deductions. The increased loss is primarily due to a higher PAYE rate of Tshs. 20,000/= plus 20% of the amount in excess of Tshs. 520,000/=
Group 3 (Gross Income: Sh760,000 – Sh1,000,000): Employees in this group lose about four months of their income to deductions, with the PAYE rate increasing to Tshs. 68,000/= plus 25% of the amount in excess of Tshs. 760,000/=
Group 4 (Gross Income: Sh1,000,000+): These employees lose about 5 months of their income to deductions, with the highest PAYE rate Tshs. 128,000/= plus 30% of the amount in excess of Tshs. 1,000,000/=
The impact of deductions
At first glance, these deductions might seem daunting. For instance, an employee in Group 4 effectively receives only 5 months of their gross income, with the rest being deducted for PAYE, NSSF, and HELB.
This can lead to the perception that their income is insufficient, even though their gross income might seem substantial.
Although most, if not all, employees understand that these deductions contribute to essential services that benefit the employees and society at large, most still question whether the authorities responsible for managing taxpayers’ money are up to the job.
Many taxpayers need better services, especially those financed by tax money, such as public education and health services.
Employees have lost trust in social security services, especially retirement plans. Retired Tanzanians have been trying to start businesses at age 60+ using their retirement funds.
This is fueled by the belief that business people have better financial status than employees.
Employed earners vs. business owners
One key point is how income tax deductions are handled for employed earners versus business owners. Employed earners are taxed before expenses, meaning their gross income is subject to deductions.
On the other hand, businesses are taxed after expenses. Business owners can deduct their operating and capital expenses from their business income before taxes apply.
The difference between their business income and operating and capital expenses is their taxable income.
This distinction can significantly impact the amount of income that is ultimately subject to tax. For business owners, deducting expenses before taxes could lower their taxable income and, consequently, the amount of tax they owe.
This is in contrast to employed earners, whose gross income is taxed before any expenses are taken into account.
Understanding income deductions isn’t just about managing personal finances—it’s about realising the power employees hold as taxpayers and contributors to society.
As employees scrutinise their payslips, they must remember that they’re not merely part of a workforce; they’re integral to the societal fabric, shaping the future through their contributions.
But it doesn’t stop there. Beyond managing their own financial affairs, employees should demand accountability from the government. They have the right to know how their hard-earned contributions are utilised.
Advocating for transparency, supporting oversight measures, and actively engaging in ensuring that taxpayer funds are ethically and effectively utilised is pivotal.
Moreover, any misuse or mishandling of public funds should be met with stringent legal consequences. Upholding this principle is crucial in maintaining the integrity of governance and safeguarding the interests of taxpayers.
Knowledge empowers action. With an understanding of income deductions, financial strategies, and the right to hold authorities accountable, employees are not just planning for their future but actively shaping a more transparent, responsible, and financially secure society for future generations.
By staying informed, engaging proactively, and working together, employees can build a future where their contributions pave the way for societal progress, and accountability ensures the responsible stewardship of public funds.
Michael Kamukulu is a data analytics and visualisation consultant based in Dar es Salaam. He’s available at firstname.lastname@example.org or on Twitter as @MKamukulu. These are the writer’s own opinions and do not necessarily reflect the viewpoints of The Chanzo. Do you want to publish in this space? Contact our editors at email@example.com.