Treatment of fringe benefits under Income Tax, VAT Acts
THIS article seeks to clarify this issue for the benefit of our valued clients. Some of the fringe benefits enjoyed by employees as part of remuneration are taxable under Employees Tax (PAYE) and Value Added Tax (VAT) legal provisions. The Income Tax Act (Chapter 23:06) states that every employer who pays or becomes liable to pay any amount by way of remuneration to any employee is required to withhold Employees Tax (PAYE).
The term “remuneration” covers a number of aspects which may be paid by the employer to any employee and includes; any amount of income received by an employee by way of salary, leave pay, allowance, wage, overtime pay, benefits or advantages, whether in cash or otherwise. The foregoing cited examples are not therefore exhaustive.
The definition of remuneration also includes amounts received as:
◆ for services rendered.
◆ on withdrawal from or winding up of a benefit, pension or unapproved fund.
◆ an amount equal to the value of an advantage or benefit in respect of employment, service, office or other gainful occupation or in connection with the taking up or termination of employment, service, office or other gainful occupation.
What are some of the common examples of fringe benefits paid or granted by employers to employees?
◆ Company motor vehicle, houseboats, security, cellphone allowance, airtime, meals, canteen meals, parking fees, DStv subscriptions, golf subscriptions, fuel, accommodation, educational assistance, school fees, holidays and others are some of the examples.
Are all taxable benefits payable to employees by employer deductible for Income Tax purposes?
Not all amounts paid by an employer in respect of benefits or advantages can be claimed as deductions for income tax purposes. Section 16 of the Income Tax Act provides for certain expenses that are not deductible for income tax purposes. One such example is entertainment expenses or amounts expended in respect of hospitality in any form. Expenses incurred for staff meals or canteen meals are not allowable for income tax purposes. Such amounts are therefore taxable for PAYE purposes but not allowed as deductions for income tax purposes.
What are the examples of fringe benefits and their treatment in terms of the VAT Act?
Supplies on which output tax must be accounted include:
◆ The supply of a motor vehicle.
◆ The supply directly or in directly of security benefit.
◆ The supply of cell phone allowance benefit (Airtime, Data bundles, Internet Facility)
◆ Parking fees
◆ The provision of canteen meals.
◆ Subscriptions for DSTV, Subscriptions to golf clubs
Supplies of fringe benefits, which are exempt in terms the VAT Act
◆ The supply of any accommodation in a dwelling
◆ The supply of any educational services.
◆ School fees allowance/benefit
The examples given above are not exhaustive and depend on the contracts of employment entered into by the employer and employee. Our valued clients are therefore urged to seek clarification or information on the correct tax treatment of peculiar benefits or advantages at their nearest ZIMRA offices or usage of the communication channels and means supplied below.
Disclaimer: This article was compiled by the Zimbabwe Revenue Authority for information purposes only. ZIMRA shall not accept responsibility for loss or damage arising from use of material in this article and no liability will attach to the Zimbabwe Revenue Authority. To contact ZIMRA: WhatsApp line: +263 782 729 862 Visit our website : www. zimra.co.zw Follow us on Twitter: @ Zimra_11 Like us on Facebook: www.facebook.com/ZIMRA.11 Send us an e-mail: firstname.lastname@example.orgemail@example.com Call us (Head Office): 04-758891/5; 790813; 790814; 781345; 751624; 752731