The tax implications of toll fees
Individuals and companies are obliged to incur a significant additional expense
SOME tax implications of the new toll fees which will shortly become payable in Gauteng may potentially affect both individuals and companies. There may be additional significant costs for individuals. For instance, based on toll fees of 50c/km, an individual travelling 100km round trip a day will be incurring an additional expense of around R1 000 a month. This raises questions surrounding the associated tax implications.
Currently employees do not get relief for the costs of travelling to and from work, even though this is incurred in the production of their taxable income. This rule is harsh and can be seen to represent a departure of the basic principles of tax law.
It becomes more harsh when people are obliged to incur such a sig- nificant additional expense.
What happens if an employee with a company car uses their company petrocard to pay toll fees? In practice this expense probably just slides through since most people consider that this benefit forms part of the taxable value of a company car. However, that taxable amount is intended to take into account the value of the vehicle plus fuel and maintenance — not toll fees. Therefore, once the number of toll fees increases it will become important for companies to ensure that an employee using a credit card in this way either reimburses the company for toll fees incurred on private travel or is taxed on this benefit. This could result in an additional administrative burden, both for individuals and employers.
In practice the new tolls will be collected through an e-tag system. Therefore the current system, under which drivers can obtain physical receipts in respect of each transaction, will fall away. Presumably registered users will receive a regular statement providing details of toll fees incurred. It is likely that this statement will form the basis for expense claims by individuals for toll fees incurred on business travel.
The other potential effect on the tax administration of a company is on the Value-Added Tax (VAT). In principle companies and VAT registered individuals are entitled to claim back any VAT incurred on toll fees associated with their enterprise. However, the documentary requirements for such claims are still unclear at this stage.
VAT on toll fees incurred by drivers of large commercial vehicles would usually be claimable in full since such vehicles would only be used for commercial purposes. However, toll fees on passenger cars may relate either to business or to private travel. This
It will also be important to review the form of such (toll fee) statements and determine whether they are tax invoices for VAT purposes
means that the documentary requirements in this situation are potentially more complicated.
In practice it seems likely that VAT may be claimed by a company on an amount corresponding to toll fees associated with business travel claims by its employees. However, the documentary proof underlying these VAT claims may well comprise documentation (specifically toll fee statements) in the name of the individual rather than the company. It will also be important to review the form of such statements and determine whether they are tax invoices for VAT purposes.
At this stage this is all fairly speculative since full details of the administrative aspects of the new tolling system, including the precise amounts of toll fees, are not yet known. Further topics for consideration include the following:
Possible tax relief for individuals using other forms of transport to and from work (such as the Gautrain).
Consideration of giving tax relief for individuals who elect to work from home rather than going to the office every day (given that the higher toll fees provide a strong incentive to explore this option).
Whether toll fees should be subject to VAT at all? It is relevant, in this regard, to note that toll fees can be viewed as being essentially a form of taxation. Therefore, does the charging of VAT on top of such fees not amount to “tax on tax”? If this argument is accepted then it might be appropriate, from a tax policy point of view, for Treasury to consider exempting, or zero rating, toll fees.
It is important for companies to keep a careful eye on developments going forward. Once further details of the new system become available companies should carefully assess the potential effect on their tax administration system and plan accordingly.