5 types of employee taxes in Africa and how to manage them
- Last updated: September 12, 2024
Who is responsible for managing employer taxes? Employers, naturally.
Who is responsible for managing employee taxes? Still employers, for the most part!
In Africa like elsewhere, many employee taxes are, in fact, the employer’s responsibility. It is up to them to appropriately calculate, deduct, and remit relevant taxes from their employees’ salaries on a consistent basis, as often as the law calls for it.
In this article, we will go over some common employee taxes that employers should be aware of, including some specific local examples.
But first…
What is the difference between income tax and other contributions?
Deductions and contributions can be broken down into 2 parts:
- Income tax, and
- Social or benefits contributions
Income tax is directly related to an employee’s emoluments which are calculated, deducted and remitted to the local tax authorities – bearing in mind details like amount earned and taxable, dependents, and other alleviations. Across a majority of countries in Africa, PAYE (Pay As You Earn) or a similar type of income tax are applicable and form the barebones of employee taxation. In countries like Botswana and Lesotho for instance, only income tax is applicable – other social contributions are not mandatory.
So, to summarise, income tax is:
- the most commonly applicable type of employee taxation
- remitted to the local tax authority
However, beyond the basics of income tax, there are also other mandatory or conditional employee contributions that employer must be aware of:
Social Security Contributions
In most countries across Africa – especially in welfare states like Mauritius for example – social security contributions are mandatory employee contributions, needed to fuel the welfare state. Both employers and employees share in the costs of these contributions. They typically cover unemployment benefits, injury, sickness, old age, disability, family allowances and more.
Social security contributions are a key payroll consideration and often depend on the employee’s salary, and their number of dependents, among other things.
Medical care
Some African countries like Benin, Cameroon, Ivory Coast, Mali, Nigeria, Togo, and Rwanda mandate medical insurance. As such, both employers and employees contribute to this benefit to the employee. In Nigeria for instance, both employers and employees contribute to employees’ medical insurance, at a rate of 10% and 5% of the employee’s monthly salary, respectively. Similarly in Rwanda, the law mandates that 15% of an employee’s basic salary should be contributed towards the universal healthcare scheme. This amount must be paid by both the employer and the employee at the rate of 7.5% each.
Life Insurance
Similar to medical insurance, some African countries may require life insurance contributions – especially for employees doing inherently dangerous or hazardous work or in countries that mandate life insurance, such as Nigeria and Ghana.
Retirement/Pension
Even though social security contributions also cover pensions, there is often a separate pension contribution that is required of employees – and meant specifically for their retirement benefits.
Workmen’s compensation
In Angola, Mali, Lesotho, Uganda, and Kenya, workmen’s compensation is mandatory. In such countries, employees may also be expected to contribute to workmen’s compensation, designed to support them during injuries or other mishaps that happen while working or while on premises.
Exceptions
Things are rarely as straightforward as they seem when it comes to payroll and taxes. Many exceptions and if-statements apply when managing tax administration across Africa, among which are:
Foreign v/s local employees exceptions
In some African countries foreign workers must pay some tax and contributions that other local workers do not have to pay. In Tanzania for example, foreign workers by pay income regardless of how much they earn, where there are usually thresholds for local workers. It is also worth mentioning that foreign workers may need to make medical contributions where local workers may not – simply because public healthcare may be free in that country, and only citizens may benefit from these services free of charge.
Decentralised systems
In countries like Nigeria, tax remittance is decentralised and tax must be remitted on the state level. What this means is that as opposed to remitting all employee taxes to one central national tax authority, employers must remit taxes to every regional state tax authority that their employees owe taxes to. So, if, for example, the employer is based in Lagos, but their employee is based in Enugu, this employee’s tax must be remitted to the local tax authority in Enugu and not in Lagos.
Second income exceptions
In Tanzania and Eswatini, another layer of complexity is added to the employee tax remittance process: needing to know whether an employee has a secondary source of income. If that is the case, the amount of tax and contributions an employee must pay will change accordingly.
Monthly v/s Annual Tax Calculation
In Uganda, income tax is calculated on a monthly basis. That is, the threshold for income must not exceed a predefined monthly amount or the employee will be eligible for taxation. The difference between Monthly and Annual tax is in the fact that the applicable tax table looks at either a Monthly or Annual value. In the Monthly Tax calculation, your income for that month is taken and taxed according to the monthly table. When your tax is calculated on an annual tax table your monthly income is then annualized, you are then taxed on the annual value. That annual value is then de-annualized to get a monthly tax value. This method means that if there are high fluctuations in taxable remuneration, the taxable impact monthly is less.
While seemingly subtle and insignificant, these differences can rapidly add up when you are managing payroll in different countries – and become bothersome to deal with.
Africa HR Solutions takes care of tax calculation and remittance for you
If you are looking to focus your time and attention on your core business offer and not on tax administration, our team is ready to support you through our award-winning payroll solutions.
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