Final Deduction System (FDS)

1. Introduction: The original (Normal) method for calculating PAYE involved first adding up all of an Employee’s earnings for the week or month being paid. This total was then multiplied by 52 or 12 respectively to give the annualised earnings. Bulky printed books were sent out annually to every employer listing screeds of figures to use to evaluate the PAYE to be deducted. At the end of the year the Employer would add up all the monthly payments to staff and compile a P6 summary that was given to each employee. The latter would then, in turn, write down details of that P6 along with any other source of income and sent it off, as a complicated P1 Tax Return, to Zimra for analysis. 

This worked well until the labour force in this country became so large that it started to take Zimra more than a year to sift through. The net result was that refunds or requests for shortfalls were being sent by post to individuals several years after the fact.

2. Final Deduction System (FDS): The FDS system of taxation was introduced in Zimbabwe about thirty (30) years ago when the Computer Society met with Zimra to effect a much easier method for PAYE Collections. Computer software development had reached the stage whereby Payroll software suppliers could program in the necessary calculations to their program so that employees who had worked at only one job throughout the year could have any shortfalls or underpayments included in each month of the year by program self-adjustments. Essentially this meant that the program used an employee’s current, regular earnings for forecast his/ her extra income for that financial year and then added that to the Year to Date (YTD) amounts to give the total expected Income for the year. The Expected PAYE was then evaluated and the YTD PAYE  paid so far was then subtracted to give a remaining balance to Pay. This, in turn, was divided by the Pay Days remaining to give the PAYE for the period in question.

3. Benefits from FDS: Most companies have peaks in troughs in their overall income with staff being paid more money either when times are good or busy periods result in more overtime. The PAYE deducted thus has similar surges. With the Normal method of PAYE calculation it could take a long time before he/she was reimbursed or asked for a shortfall. With FDS these changes are fully accommodated for as YTD Income.