Employer Tax Contributions

Tax Type	Rate	Base
PAYE (Pay As You Earn)	20% / 30%	Employee's Taxable Income
Fringe Benefit Tax (FBT)	40%	Taxable value of fringe benefits
National Pension Scheme	10% (Employer)	Employee's earnings
National Health Insurance Fund (NHIF)	2% (Employer)	Employee's earnings

Filing & Compliance

• Monthly PAYE returns and payments are due by the 15th day of the month following the month in which the tax was withheld.
• Annual PAYE reconciliation is typically due by June 30th following the end of the tax year (which runs April 1st to March 31st).
• Employers must issue P16 certificates to each employee detailing remuneration, deductions, and PAYE withheld.

In Lesotho, employee tax deductions are determined by a progressive tax system with specified rates, thresholds, and allowable deductions.

Tax Rates and Thresholds

• Tax Year: April 1st to March 31st

• Taxable Income: Income above M4,400.00 per month is subject to tax.

• Tax Rates:

  • 20% on income from M4,400.01 up to M5,620.00 per month.
  • 30% on income above M5,620.00 per month.

• Tax Credit: A non-refundable tax credit of M920.00 per month (M11,040.00 annually) is applied. If tax liability is less than this tax credit the employee pays no income tax.

• Example: An employee earning M6,000.00 per month would have M480.00 taxed at 30%, resulting in M144.00, and M1,220.00 taxed at 20% resulting in M244.00, totaling M388.00 before credit. After the credit, the tax due is M388.00 - M920.00. Since tax liability cannot be negative no income tax is due.

Allowable Deductions

• Retirement Fund Contributions: Contributions to approved retirement funds are deductible up to 20% of the employee's gross income.

Pay As You Earn (PAYE)

• Employers are responsible for calculating, deducting, and remitting PAYE tax to the Lesotho Revenue Authority (LRA).
• PAYE is calculated based on the employee's total earnings, applicable tax rates, and allowable deductions.

Additional Considerations

• Fringe Benefits Tax (FBT): If an employer participates in the FBT system, fringe benefits included in the FBT are not part of the employee's taxable income. Otherwise, the fringe benefits provided to employees are included in their income and subject to PAYE.
• Terminal Benefits: Terminal benefits (severance pay, gratuity, superannuation fund payments) are exempt from income tax if they don't exceed 25% of the basic salary earned during employment and meet other specific criteria.

As of February 5, 2025. Tax regulations and rates are subject to change. Always consult the latest official resources for the most up-to-date information.