Employment Income

BBM II- 2024/2025

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 The employment is defined under s. 3 to
mean:
 a position of an individual in the

employment of another person;

 a position of an individual as manager of

an entity other than as partner of a

partnership;
 a position of an individual entitling the

individual to a periodic remuneration in

respect of services performed; or
 a public office held by an individual, and
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 Includes a past, present and prospective
employment.

 From this definition, let us relate the parties

involved in employment by defining the following
two common terms which may be used to explain
what employment is.
 Contract of service
 Contract for service

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 Contract of service:
 a master and servant relationship exist,
 the master has the right to demand the service of the

person (servant) and

 the master directs the manner and method of the work

to be done.
 Contract for service:
 Exists when a person gets the service of another

person to do a specific job

 The worker is generally free to carry out those

instructions according to his discretion

 The hirer cannot control and determine in what

manner the work should be done

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 Therefore employment falls under
contract of service and includes full
time, part time or casual
employment.

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  Chargeable (taxable) income from
employment.
Resident employee’s income from employment is
taxable for the year of income irrespective of the
source of income while in the case of a non-resident
employee’s income from employment is taxable only
to the extent the income has the source in the United
Republic.

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 However, section 6(2) requires that the taxable
income of an individual who at the end of a year of
income has been resident in the United Republic
only for two years or less in total during the whole
of the individual’s life to be the income to the
extent has a source in the United Republic (is
taxable as if is a non-resident)

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 Under Section 7(2), the following should be
included in the determining taxable income
from employment:
 payments of wages, salary, payment in lieu of

leave, fees, commissions, bonuses, gratuity or any

subsistence, traveling, entertainment or other
allowance received in respect of employment or
service rendered. This part also includes medical
allowances, housing allowances, meals
allowance, hardship allowance, seating
allowances, utility allowances, upkeep allowances
etc.

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 Note: Not all employers use the same terms to
express what income paid to their employees.
Thus, this part includes all cash payments paid by
an employer to an employee for services
rendered.

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 Payment providing any discharge or reimbursement
of expenditure incurred by the individual or an
associate of the individual.
 Payment for the individual’s agreement to any

condition of employment e.g. the employee may

agree with the employer to receive certain amount
apart from salary if he/she works in a certain
position.
 Retirement contributions and retirement payments

e.g. contributions by the employer to NSSF and

PSSSF.

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 Payment for redundancy or loss/termination of
employment
 Other payments and benefits in kind (as per s.27),

e.g
◦ housing benefit and furniture
◦ Favorable loans provided by the employer
◦ Use of motor vehicle provided by the employer
◦ Any goods or services which the employer has
provided

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 The
following are excluded when
computing income from employment:-
 exempt amounts (under 2nd Schedule)
 On premises cafeteria services that are available on

non-discriminatory basis, i.e. available to all

employees.
 Medical services, payment for medical services, and

payment for insurance for medical services to the

extent that the services or payment:
◦ Available to the individual, spouse (wife or
husband) of the individual and up to four children,
and
◦ Provided on a non-discriminatory basis i.e.
provided to all employees.
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 any allowance representing only reimbursements to
the recipient of an amount expended by him/her
wholly and exclusively in the production of his/her
income from employment or services rendered. For
example, if a purchasing officer is out the office to
exercise purchasing activities, and he is paid such
costs of traveling, accommodation etc, the amounts
will not be taxable.
 Benefit from use of motor car provided by the

employer where the employer does not claim any

deduction in relation to the vehicle.

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 Benefits derived from the use of residential
premises/house by an employee of the government
or any institution whose budget is fully or
substantially out of the government subvention.
 Retirement contributions and retirement payments

exempted under the Public Service Benefits Act

1999.
 Retirement contributions not exceeding the

statutory amount of shs. 2,400,000 (reg. no. 10) per

year as provided under s. 61(1) & (2).
 Allowance payable to an employee who offers

intramural private services to patients in a public

hospital. (FA 2011)

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 Payment providing passage of the individual,
his/her spouse and up to four of their children to or
from place of employment which correspond (or
equal to) the actual traveling cost where the
individual stay ( or is domiciled) more than 20 miles
from place of employment and is recruited solely in
the service of the employer at the place of
employment. If such employee is working for more
than one employer such amount will be taxable.

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 Housing allowance, transport allowance,
responsibility allowance, extra-duty allowance,
overtime allowance, hardship allowance and
honoraria where these allowances are payable to
an employee of the government or its institution
whose budget is fully or substantially paid out of
government budget subvention (FA 2011).

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 General rule of excepting
Payments paid by employer will only be excepted if it

is incurred wholly, exclusively and necessarily in the

performance of duties that the expenditure are
expected to be borne by employer
Example if the employee is required to wear clothes

of high standard and being reimbursed-taxable

Expenditure on phone calls (for the business is

deductible, personal call –taxable)

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 Payments that are unreasonable or
administratively impracticable for the employer to
account for or allocate to their recipients e.g. the
employer may provide tea on certain occasions,
this is administratively difficult to include in the
salary of the employee.

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 Benefits in kind.
Motor cars benefit (s. 27)
Where employer provides a vehicle for the private

use of the employee and claim a deduction in relation

to ownership, maintenance or operation of the vehicle,
this is taxable benefit to the employee (section 7(3))
However where the employer does not claim a

deduction in relation to ownership, maintenance or

operation of the vehicle, the benefit is not taxable on
the employee. Benefit quantification refer the table
section 27(1)

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 Quantity of payment

Engine Size of Vehicle Vehicle less

Vehicle 5 years or more
than 5 years
old
old

Not exceeding 1000cc Shs. 250,000 Shs. 125,000

Above 1000cc but not

Shs. 500,000 Shs. 250,000
exceeding 2000cc

Above 2000cc but not Shs.

Shs. 500,000
exceeding 3000cc 1,000,000

Shs.
Above 3000cc Shs. 750,000
1,500,000
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 Staff loans
When the loans are made to the employee below the

official rate of interest then the forgone interest is

taxable only when the loan term is 12 months or more
and the aggregate amount of the loan and any other
similar loans outstanding at any time during the
previous twelve months exceeds three months basic
salary pay (section 27(1)). When either of the
exception terms does not hold the forgone interest is
taxable.

Note: Before computing the forgone interest is

important to test whether interest benefits is taxable or
not (use the above conditions)
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Example 1:
Assume a year of income 2012
Basic salary shs. 200,000 per month
Loan granted in January 2012 shs. 400,000 and is
repayable in March, April and May 2012 i.e. repayment
period is five months.
No interest is charged on the loan by the employer
Required
Compute the amount to be included in the 2012 year
of income as benefit in kind.

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Solution
Statutory rate in relation to a calendar year means the
BOT discount rate at the start of the calendar year (i.e. 1st
January).
Loan granted for a period of 5 month which is less than a
year.
Three months basic salary = shs. 200,000 x 3 = shs.
600,000
No benefit in kind because the period for the loan is less
than a year.

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Example 2
Assume a year of income 2012
Basic salary is shs. 200,000 per month
Loan granted in January 2012 shs. 800,000 and is
repayable in June shs 100,000 and on 31 Dec 2012
shs 700,000 i.e. repayment period is twelve months.
No interest is charged on the loan by the employer
Required
Compute the amount to be included in the 2012 year
of income as benefit in kind.

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Solution
Statutory rate is 12%, Loan granted for a period of 12
months which is a year.
Three months basic salary = shs. 200,000 x 3 = shs.
600,000,Outstanding loan balance for 12 month is shs
700,000 (i.e shs 800,000-100,000) which is greater
than the 3 month basic salary.
Statutory interest is greater than interest charged by
the employer
Since all the conditions (i) to (iv) above are fulfilled
then there is benefit in kind computed as follows:
Outstanding loan for 12 months X (statutory rate –
employer’s rate) X time
For this case = 700,000*12% X 12/12
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 Residential Housing
When the employer provides a residential house for
free or less than the market rental and claim deduction
over ownership and maintenance of the house, the
forgone rent is taxable benefit (section 27(3)). The
house in cash forms are taxable income as other
income.

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 The value of housing including any furniture or
other contents ; is calculated as the lesser of
i. The annual market value of the rental of the house
ii. The greater of:
 15%of the employee’s total income (business,
investment and employment income before house
benefits) and
 The expenditure claimed as a deduction by the
employer in respect of the premises during the year
of income.

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Review question.
Mr. Hamnazo is a resident employee of Tatua Company Ltd from 1 January 2022.
The following information relates to his affairs:
(i) His monthly receipts include basic salary, transport, lunch and medical
allowances to the tune of TAS 500,000, TAS 425,000, TAS 175,000 and TAS
50,000 respectively.
(ii) Other per month benefits enjoyed by Mr. Hamnazo includes electricity and
water amounting to TAS 300,000 and TAS 240,000 respectively.
Required:
Establish the monthly taxable income and Tax payable from employment for Mr.
Hamnazo for the first month of 2022.

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Enjoy your studies
“‘Good day”

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