Taxation of airtime, data allowances
In the year beginning January 1, 2022 there have been some amendments to the Income Tax Act in relation to the definition of gross income.
This change came through the Ministry of Finance and Economic Development (MoFED) in relation to the 2022 national budget. This change relates to the taxation of airtime and data allowances. This topic has been causing quite some debate in terms of how this should be treated in terms of the tax laws.
There were some varying views on what is the correct treatment, with judgement being applied by some to come up with what could be reasonable and logical. This gave rise to inconsistency and non-compliance with laws, which can expose one to possible fines, penalties or litigation against the tax authorities.
By way of background, which admittedly I have oversimplified, if one is in the employ of an organisation they are taxed on whatever they earn or are paid by the organisation in return for the service to the same organisation.
The fairly straightforward examples are employees’ basic salaries and most allowances which are simply added up to obtain one’s income which is then taxed as per the tax tables. The tax tables, by the way, were also changed effective January 1, 2022 with the minimum taxable amounts being increased to ZWL300 000 per year (ZWL25 000 per month) or US$1 200 per year (US$100 per month).
The tax rates will range from nil if one earns less than the amounts stated above up to 40% for those in the highest tax bracket.
Gross income
The calculation of tax is based on the total earnings, which go above basic salary and most allowances as already mentioned. There are some specific allowances which are included as an employee’s total earnings (gross income).
This therefore implies that when tax is calculated, it is on the usual basic salary plus most allowances as well as certain benefits/advantages which are deemed to be one’s earnings.
From my perspective, there is a general thinking in the promulgation of the law that these additional benefits should include items which will directly add an advantage to an employee in their personal capacity.
Section 8 of the Income Tax which has the technical definition of gross income highlights gross income includes total earnings received or accrued or deemed to have been received or accrued by a person from a source in Zimbabwe (or deemed to be within Zimbabwe).
There are also some exceptions which will require an entire textbook chapter to get into. A key word that features is deemed which I believe can simply mean “considered or believed to be”.
This is key as we look at taxation of airtime and data allowances which an employee receives, but together with their employer, would otherwise classify as a tool or means for one to perform their duties away from the office premises, rather than as a part of their salary.
Advantage or benefit
I have highlighted that an employee’s income includes some advantages or benefits which are added to the gross amount on which taxation is paid. There are several of these and section 8(1)(f) lists some of these.
It is important to note that this particular section was amended effective January 1, 2022 and it is this amendment which has given rise to the topic around the data and airtime provided to employees for use outside their business premises. For the purposes of this article I have narrowed the discussion to a small component of the entire section of the law that deals with advantages or benefits to employees.
The other aspects that are included are areas such as the use of furniture, motor vehicles or residence.
The amendment to section 8(1)(f) under part I. (a) (vi) highlights that, included in the definition of an advantage or benefit is 30% of the cost of the provision by the employer to the employee for use at the home of the employee or outside of the work premises of either:
• Mobile or landline telephone airtime; or
• Airtime or data for broadband or internet access, unless the employer proves to the Commissioner (tax authorities) that any part of the taxable 30% portion of the cost has been used for the purposes of the employee’s employment.
The reasoning
This in my personal view, implies that, the assumption was that about 70% of the data or airtime is for work while the remaining 30% will be for the employee’s benefit.
I would imagine this is because one would likely use the same airtime and data to make personal calls or visit non-work related websites and it may be impractical to make a clear separation, unless one has two gadgets and a strict regime of separating work related and personal calls or internet surfing. I suppose for social media managers of organisations this might be possible, but certainly speaking for myself the separation can be difficult.
However, there is a provision to allow an employee and employer to demonstrate that more than 70% was used for work related purposes. Perhaps this can be done by providing call and browsing history to show the nature of the phone call and internet surfing. I think with an itemised statement one can then do the ticking and bashing against individual transactions to demonstrate that they were for the purposes of the employee’s employment.
Tax treatment
Having gone to length to give a background and what I think is the logic or reasoning around this amendment, it is important to then summarise and highlight that, effective January 1, 2022, 30% of data and airtime provided to employees for use at home or outside the work premises is to be treated as taxable benefit, unless one can demonstrate that the deemed portion was in fact also utilised for the purposes of the employee’s employment.
Mavengere is the Acting CEO at the Institute of Chartered Accountants of Zimbabwe (ICAZ). Owen can be contacted on technical@icaz.org. zw or twitter: @OwenMavengere.