IN the past, the computation and declaration of PAYE was not an issue because the bond notes and the United States (US) dollars were treated on a 1:1 basis and it also the currency of tax payment to the Zimbabwe Revenue Authority (Zimra) did not matter.
In the advent of the promulgation of regulations governing monetary issues, namely statutory instruments 32 and 33 of 2019, it has become difficult dealing with payroll issues, especially in cases where earnings are both in RTGS dollars (RTGS$) and in foreign currency.
An issue of concern is the hybrid payroll triggered by the use of multicurrency as it could be one of the reasons for the surge in the inflation rate. The article will dissect and ventilate the prognosis of a hybrid payroll as a conduit for inflation and how employers could ameliorate the situation for the betterment of the employees and economy.
In essence, paying employees blended income results in US dollar tax tables being used. This is done by converting the ZWL component of gross income and deductions to US dollar equivalent using the official interbank rate of exchange and adding these to the actual US dollar earnings for the employee.
US dollar tax tables are then applied to the combined US dollar earnings for determination of PAYE. However, the resultant PAYE should be remitted to the Zimra in proportion to currency of earnings. Where earnings are 100 percent in local currency, ZWL tax tables are used. If an employee receives any other foreign currency other than US dollar, the amount is converted at cross rate to US dollar on the date the remuneration accrues to him.
The fact that the official rate of exchange always trails the parallel market rate (normally at 50 percent) and the two rates keep moving, there has been a need to adjust the ZWL$ earnings to maintain purchasing power.
Effectively, this conversion of the ZWL earnings to US dollar at the official rate results in a higher US dollar earnings (artificial US dollar earnings), which pushes most employees into a higher US dollar tax bracket judging by the way the parallel market is currently surging and the need by employers to retain their staff. The cost of employment has become unbearable, especially when the objective is to retain staff.
A vicious cycle of chasing purchasing power by both employees and employers is one of the many factors feeding the inflationary environment obtaining in the economy.
While the foregoing suggests dollarising, i.e., paying 100 percent of earnings in US dollar, it is obviously a non-sustainable option for most employers as the economy does not have much of the sought after US dollar in circulation. The alternative of paying 100 percent ZWL earnings does not help either since the ZWL$ tax tables have remained stagnant from the time they were introduced (January 1, 2023) till now. In terms of the current ZWL$ tax tables, a maximum of 40 percent applies on earnings of ZWL$1 000 000 per month, an equivalent to at most US$1 000 per month based on the official exchange rate (and half that amount if parallel rate is applied). Technically, paying employees 100 percent ZWL$ earnings pushes most of them into the maximum rate of 40 percent + 3 percent AIDS.
Consequently, employees are being overtaxed when payroll is in multicurrency and most companies are battling to retain their staff. It may be worthwhile for employers, depending on their ability to generate foreign currency, to pay a greater proportion of employment costs in foreign currency to cushion both the company and employees.
The more the foreign currency the less artificial US dollar earnings, resulting in lower PAYE, but employers must also be prepared to send a greater proportion of the tax to Zimra in foreign currency.
Additionally, they should also consider maximising non-taxable benefits to employees for example paying 100 percent medical aid cover, pay airtime and data for employees (70 percent of this is regarded for business use in line with Finance Act 7 of 2021 therefore non-taxable), pay 100 percent pension contribution among other benefits on behalf of employees to cushion them and reduce employment costs. An appeal is made to the minister of Finance to widen the US dollar tax tables to a position similar to that obtaining prior to SI 33 of 2019 by setting the minimum tax threshold and highest rate of 40 percent at US$250 and US$5 000 per month, respectively, instead of the current US$100 and US$3 000 per month, respectively.
This may be one way of curbing inflation and stabilising the economy. Advocating for the adjustment of the ZWL$ tax tables is not a solution as more transactions are now being made in foreign currency, as confirmed by the minister of Finance in his recent public announcement “Measures To Stabilise The Exchange Rate and Macro Economy” where he stated that total foreign currency receipts are expected to top US$13 billion this year.
In conclusion, the multicurrency regime has put both employers and employees in a state of hysteria because the employers, though it makes sense to pay 100 percent US dollar salaries, have limited capacity to do so in most circumstances and on the other hand, a hybrid payroll prejudices the employees due to the high volatile rates, which wipe out the ZWL component of the salary.
A continuation of hybrid payroll is the harbinger and perpetrator of the skyrocketing rates of inflation, which shows no signs of abating as they choke the livelihood out of employees who are relegated to the peripheries of penury.
A juxtaposed hypothetical solution could be reached where both employees and employers renegade and reach a compromise in terms of matters of the payroll, as it could benefit both as the adage says” with a heart wide open there is no obstacle we cannot overcome”.
Tapera is the founder of Tax Matrix (Pvt) Ltd and the chief executive of Matrix Tax School. He writes in his personal capacity.