Question and Answer

Q What are the differences between PAYE and PIT

A: Here are 10 key differences between PAYE (Pay As You Earn) and PIT (Personal Income Tax):


Nature of Taxation:

PAYE: PAYE is a system of withholding tax from an employee’s income by their employer, typically every month.

PIT: Personal Income Tax (PIT) is the tax levied directly on an individual’s income by the government, usually on an annual basis.



PAYE: Applied to income earned through employment.

PIT: Applicable to all types of income earned by individuals, including salaries, wages, bonuses, interest, dividends, and capital gains.


Tax Rates:

PAYE: Typically calculated based on a progressive tax rate structure, with different tax bands and rates depending on the employee’s income level.

PIT: Also follows a progressive tax rate structure, but the tax rates and bands may differ from those used in PAYE.


Tax Calculation:

PAYE: The tax calculation is done by the employer based on the employee’s earnings and tax code, with deductions made directly from the employee’s paycheck.

PIT: Taxpayers are responsible for calculating their tax liability based on their total income for the year and filing a tax return with the relevant tax authority.


Filing Frequency:

PAYE: Taxes are deducted and remitted to the tax authority by the employer regularly (e.g., monthly).

PIT: Taxpayers typically file an annual tax return with the tax authority, declaring their income and any applicable deductions or credits.


Deductions and Allowances:

PAYE: Employees may be entitled to certain tax deductions and allowances, such as allowances for pension contributions, which are factored into their PAYE calculations.

PIT: Taxpayers can claim various deductions, allowances, and tax credits when filing their annual tax return, such as deductions for mortgage interest, medical expenses, and charitable contributions.


Employer’s Role:

PAYE: Employers are responsible for withholding and remitting PAYE taxes on behalf of their employees to the tax authority.

PIT: Employers have no direct involvement in the PIT process, as it is the individual taxpayer’s responsibility to calculate and pay their income tax.


Tax Liability Timing:

PAYE: Taxes are withheld and paid throughout the tax year, ensuring that the tax liability is spread out over time.

PIT: Tax liability is typically settled at the end of the tax year when the taxpayer files their annual tax return.


Flexibility and Adjustments:

PAYE: Limited flexibility for employees to adjust their tax withholdings during the year, as the calculation is based on set tax codes and earnings.

PIT: Taxpayers have more flexibility to make adjustments to their tax liabilities throughout the year by managing their income, deductions, and tax credits and by making estimated tax payments if necessary.