Dividend and Interest Income

“Dividend income for individuals which have been subject

to dividend withholding tax has always been taxed at
personal income tax rate until 23 December 2005. It was
then treated as Exempt Income.
On the other hand Interest income received from approved
Papua New Guinea financial institutions was exempt in the
past, but this was repealed in the 1999 National Budget.
From January 1999 interest payments are also subject to a
15% withholding tax and a credit can be claimed on it.”
Taxation of Individuals: Salary or Wages Tax
3. Salary and Wages Income
 Introduction:

Salary or wage tax may also be referred to as

PAYE (Pay as You Earn) or Group Tax. PAYE is self
–explanatory – salaries and wages are taxed at
the same time people receive their pay every
fortnight (2 weeks).
Hence, it is an impossible tax to avoid for that
reason.
 Income subject to Salary or
Wages Tax
Salary or wages include:
• Normal fortnightly salary or wages;
• Employment related allowances, for example, housing or use of
vehicle, whether in cash or in kind.
• Commissions and bonus payments
• Gratuities
• Meals
• Consultancy fee;
• Fees for professional services performed;
• Payments by a company to its directors
• Superannuation pay-outs (e.g. NASFUND or Nambawan Super -
payments.)
 Salary And Wages Tax Table

The fortnightly salary or wage tables are based

on the personal income tax rates and incorporate
rebates for dependents on a fortnightly basis.
All employees must complete a salary or wage
tax declaration form in order to benefit from
dependent rebates.
 Salary And Wages Tax Table
An employee who does not complete a
declaration form will be taxed at the rates listed
in Column 3 of the Tables, under the heading
“Where no declaration is lodged”.
Column 2 of the fortnightly Tax Table shows tax
payable of non-residents.
Column 4 is the column you will normally refer
to. It lists the fortnightly tax payable for residents
claiming up to three dependents.
 Salary And Wages Tax Table

Table A covers fortnightly incomes levels up

toTable
K385.00. Residents
A covers fortnightly into this
incomes levels up K385.00. Residents in
category
this category whowho have
have lodge lodge
a declaration a on their income.
pay no tax

declaration pay no tax on their

Table B cover fortnightly incomes ranging
income.
from above K385 to K900
 Salary And Wages Tax Table

Table C covers fortnightly incomes above K900.

Although no tables are provided, the guidelines
for calculating tax payable on wages and salaries
over K900 are given and they are straightforward.
For someone who has submitted a declaration,
tax payable is as follows:-
 Salary And Wages Tax Table

1. For amounts over K900 per fortnight, tax payable is K127.96 pus
30% for every K1 the salary this amount, up to K1,277.00;
2. For amounts over K1,277 per fortnight, tax payable is K240.77 plus
35% for every K1 by which salary exceeds this amount, up to
K2,700.00
3. For amounts over K2,700.00 per fortnight, tax payable is K738.85
plus 40% for every K1 by which salary exceeds this amount, up to
K9,632.00;
4. For amounts over K9,623.00 per fortnight, tax payable is K3,508.43
plus 42% for every K1 by which salary exceeds this amount.
 Salary And Wages Tax Table

Sums may be deducted from the gross taxable amount

for dependents as follows:-
1 dependent – K17.31
2 dependent – K28.85
3 dependent – K40.38

These are the maximum amounts that may be claimed

for dependents calculated on a fortnightly basis. (3)
dependents is K1,050.00 per year, which on a
fortnightly bases amounts to K40.38 (K1050 /26 FNT)
 Periods other than Fortnight

Wages earners will sometimes receive payments

for periods other than one fortnight, or in
addition to their fortnight pay. The Internal
Revenue Commission has definite rules on how
these payments should be taxed.
 More than one FNT Salary:
Monthly salaries
The Salary or Wage is calculated as the full number of
fortnight’s tax and the pro rata part of the fortnight
remaining for the period.

EXAMPLE: An employee is paid K 900 for the month of

January. He has lodged a Declaration claiming no
dependents.
January has 31 Days (ie 2 Fortnights and 3/14 of a
fortnight)
 More than one FNT Salary: Monthly
salaries
Salary earned during each fortnight = K 406.45
900/31 x 14
Fortnightly Tax (no Dependants) = K 3.23
Total Tax for the month:    
first fortnight = K 3.23
second fortnight = K 3.23
3/14 fortnight = K 0.69
Total Tax to be deducted = K 7.15
 Less than a Fortnight
A. Weekly
The (2) two weekly amounts in each fortnight
are added together

Example . An employee receives K 280.00 per

week and has lodged a declaration claiming one
(1) dependent.
 Less than a Fortnight
A. Weekly

Fortnightly salary or wages = K 280.00 x 2

  = K 560.00
Tax on Fortnightly salary of K 31.55 (Tax table: 1
K 560.00 = Dependent)

Tax Per Week = K 31.55/2

    K 15.77
 Less than a Fortnight
B. Other than Weekly
The fortnightly equivalent of salary and wages is
worked calculate. Salary is based on 14 days per
fortnight, and the tax is then apportioned to the
days actually worked.

EXAMPLE: An employee receives K 250.00 for

eight (8) days work. He has not lodged a
declaration.
 Less than a Fortnight
B. Other than Weekly

.
Fortnightly salary or wages = K 250 / 8 x 14
  = K 437.50

Tax on Fortnightly salary of K 437.50 = K 184.38

(Tax table: No declaration)

Tax on eight days work for K 250.00 = K 184.38 / 14 x 8

  = K 105.36
 Commencement Or Cessation Of
Employment
The fortnight equivalent of salary or wages based
on 10 days per fortnight, and the tax is then
apportioned on the actual number of days worked.

EXAMPLE: An employee commences employment

and earns K 224 for 7 days worked up to the end of
the fortnight. He has lodged a declaration claiming
two (2) dependents.
 Commencement OrIncome
Capital and Cessation Of
Employment
Fortnightly salary or wages = K 224 / 7 x 10

  = K 320.00

Tax on Fortnightly salary of K 320 = K0.00

(Tax table: 2 Dependents)

Tax on seven days work for K 224 = K 0.00 / 10 x 7

  = K0.00
 Payment In Advance
When employees go on leave they may receive pay in
advance. This leave pay is taxed as if it were received
over normal pay periods.

Example: An employee with three dependents receives

a normal salary of K1,000. He goes on leave for three
weeks and receives his salary for this period in advance.
He therefore receives his normal fortnightly salary of
K1,000, and three weeks leave pay, which totals K2,500.
 Payment In Advance

Tax on fortnightly salary of K1,000 = K117.31

(Tax table calculations)

Tax on three weeks leave pay = 117.31 x 1.5

  = K175.97

Total tax on K2,500 = K293.28

 Payment In Arrears
When back payments are included in wages, they should be
taxed as if they were received in the period they were
earned. They should not be taxed as a lump sum. Back
payments may be paid for overtime or back payments of
wage increases, etc.

Example
An employee with three dependents receives K811. This
includes his normal fortnightly pay of K650, plus overtime
for that fortnight plus previous fortnights. The overtime
was earned as follows:
 Payment In Arrears

Step 1: The payment is broken up into the amount applicable to each

fortnight. For this example, these are:

1st fortnight K55

2nd fortnight K42
3rd fortnight K64

Step 2: Add the overtime to the total salary or wages earned by the
employee for the previous fortnights.

1st fortnight K650 + K55 = K705

2nd fortnight K650 + K42 = K692
3rd fortnight K650 + K64 = K714
 Payment In Arrears

Step 3: Calculate salary or wages tax which should have been paid
during these fortnights. Then subtract the amount of salary or wages tax
that was actually paid. The difference the figures will be the amount of
extra tax to be paid.
Gross Salary Tax payable Less tax paid Extra tax payable
1st f/n K705 K44.98 K36.99 K7.99
2nd f/n K692 K43.00 K36.99 K6.01
3rd f/n K714 K46.93 -------- K46.93
Total tax payable K60.93
* the third fortnight is the fortnight just passed, for which no tax has yet
been paid.
End of Topic 3