Dr. Ashni Singh announced an increase in the income tax threshold by $10,000 during his budget 2022 presentation on Wednesday, January 26th and the same was published in the official gazette for February 11th, 2022 to be effective from the year of income commencing January 1st, 2022. We were all over it and updated our software calculations in a jiffy!
What does this mean?
In summary, taxpayers will be paying less tax and your employees will take home more! To expand, the periodic deductions are now as follow:
| Daily | $2,466 |
| Weekly | $17,308 |
| Fortnightly | $34,615 |
| Monthly | $75,000 |
| Yearly | $900,000 |
That is, if an employee’s monthly gross income is from $75,001 to $225,000, at least $75,000 of that is tax free and if he earns $75,000 or less, no tax is paid.
A closer look
As you know, when it comes to taxes there’s always more! Let’s have a closer look at the application of these changes. Here we talk about:
- Chargeable Income Calculation
- Tax Calculation
Chargeable Income Calculation
Chargeable or taxable income is simply that portion of the employee\’s income with tax obligation. It is the employee’s salary after allowed deductions and it takes into consideration:
- Statutory free pay deduction
- National Insurance Scheme (NIS) contribution
- Medical and Life Insurance premiums deduction
Formula: Gross income – (statutory deduction for the period + employee’s NIS contribution + Medical and Life Insurance premiums deduction)
Details
Statutory free pay – the amount stated as the threshold for the period if income is less than or equal to the base salary. Otherwise, this is simply 1/3 of the employee’s gross income.
The base salary per period is as follows:
| Daily | $7,397 |
| Weekly | $51,923 |
| Fortnightly | $103,846 |
| Monthly | $225,000 |
| Yearly | $2,700,000 |
NIS contribution – 5.6% of the employee’s income up to $280,000 monthly and $64,615 weekly.
Medical and Life Insurance premiums deduction- up to 10% of Gross Salary or annual amount of $360,000, whichever is less.
Examples
Let’s see how this really works!
Monthly
Basic Salary: $320,000
Overtime amount: $15,000
Taxable allowances: $20,000
Taxable commission: $0
Other income: $0
Taxable income = ($320,000 + $15,000 + $20,000) – ($118,333+ $15,680)
= $355,000 – $134,013
= $220,987
Fortnightly
Basic Salary: $65,000
Overtime amount: $15,000
Taxable allowances: $20,000
Taxable commission: $0
Other income: $0
Taxable income = ($65,000 + $15,000 + $20,000) – ($34,615 + $4,480)
= $100,000 – $39,095
= $60,905
Weekly
Basic Salary: $200,000
Overtime amount: $15,000
Taxable allowances: $20,000
Taxable commission: $0
Other income: $0
Taxable income = ($200,000 + $15,000 + $20,000) – ($78,333 + $3,618)
= $235,000 – $81,951
= $153,049
Tax calculation
Now you know how much of the employee’s salary needs to be taxed, great! How much tax is due? Glad you asked!
The key to deriving the correct tax obligation is $1,800,000 (that is, the yearly deduction of $900,000 multiplied by 2). Why is this figure significant? Well, it determines everything! No, literally. I’ll explain!
Taxable income (gross income after allowed deductions) less than or equal to $1,800,000 per year, is taxed at 28% and anything above is taxed at 40%.
Let’s use our examples here as well!
Monthly
Taxable income = $220,987
$75,000 x 2= $150,000
at 28%: $150,000 x 0.28
tax = $42,000
at 40%: ($220,987 – $150,000) x 0.4
tax = $28,395
Total tax payable = $70,395
Fortnightly
Taxable income = $60,905
$34,615 x 2= $69,230
at 28%: $60,905 x 0.28
tax = $17,053
Total tax payable = $17,053
Weekly
Taxable income = $153,049
$17,308 x 2= $34,616
at 28%: $34,616 x 0.28
tax = $9,692
at 40%: ($153,049 – $34,616) x 0.4
tax = $47,373
Total tax payable = $57,065
Phew! I know, I know. There’s no simplicity with taxes. Or is there? Haven’t you heard? There’s Techlify HRMS; the payroll & HR management app that does it all— and some more! Learn more at Human Resources Management Software | Techlify Guyana and get started by contacting us at info@techlify.com.
