Kingdom of Lesotho

Lesotho’s income tax structure is based on a progressive system comprising rates of 20% and 30%. Personal income tax is imposed on residents on their worldwide income and non-residents earning income from sources within Lesotho. For employees, personal income tax is deducted at source through the Pay As You Earn (PAYE) withholding system. Under this mechanism, employers are required to deduct income tax from employee earnings each month and remit it to the Revenue Services Lesotho (RSL). Employers must accurately calculate monthly PAYE by applying the relevant marginal tax rates and credits to total employment income while accounting for deductible employee contributions such as pension, medical aid and approved expenses.

Payroll taxes consist primarily of employee PAYE income tax. Under the PAYE system employers deduct income tax monthly, using a progressive rate of 20% on monthly income up to LSL 6,480 and 30% on income exceeding that threshold. Each employee benefits from a non-refundable monthly tax credit of LSL 1,020, which is applied to reduce their income tax liability. Unlike many jurisdictions, Lesotho does not operate a universal mandatory social security system with fixed contribution rates applicable to all employers and employees. Pension arrangements and medical coverage are typically governed by employer-specific policies or sector-based schemes rather than a standard statutory framework. Where applicable, employers may facilitate contributions to approved pension or retirement schemes, based on employment contracts or organisational policies. Medical aid or insurance contributions may also be provided, depending on employer arrangements. In addition to PAYE, certain employers may be subject to additional obligations. A Skills Development Levy (SDL) may apply to employers meeting prescribed payroll thresholds, typically calculated as a percentage of total payroll (subject to confirmation with current regulations). Employers are also required to take out workmen’s compensation insurance with an insurance company to cover employee injuries while on duty. Depending on the sector and benefits, employers may also need to account for Fringe Benefit Tax (FBT) on non-cash benefits like company vehicles, housing or other benefits in kind.

Employers are required to file PAYE returns and remit the corresponding taxes to the RSL monthly, with payments due by the 15th day of the month following the month in which the tax was withheld. This deadline also applies to other applicable payroll deductions. Employers must ensure timely and accurate submission to avoid interest charges and penalties. The tax year in Lesotho ends on 31 March, after which employers must undertake an annual PAYE reconciliation. This involves reconciling the total tax deducted during the year with the actual tax liabilities of each employee. Following reconciliation, employers must complete and distribute the relevant PAYE certificates (typically using P16 or P16(b) forms or their electronic equivalent), distributing one copy to each employee, submitting a second copy to the RSL and retaining the third for their records. This process is generally aligned to the annual filing deadline of 30 June following the end of the tax year.

Employers are required to comply with both tax and labour laws, which mandate proper reporting, timely payments and comprehensive record-keeping. Under the oversight of the RSL and the Ministry of Labour and Employment, businesses must maintain accurate records of employee earnings, PAYE deductions, employment contracts, working hours, leave records and termination details. These records must be kept for at least seven years and be readily available for audit or inspection. Tax compliance in Lesotho is governed primarily by the Income Tax Act, 1993, as amended, and involves monthly PAYE filings, annual reconciliations and issuing tax certificates. Labour compliance requires following the Labour Code Order, 1992, on wages, hours, safety and termination. Non-compliance can lead to penalties or legal action.