Company cars have long been seen as a valuable perk because of the flexibility, prestige and convenience they provide to employees. The flexibility comes about because employees are able to embark on private travel; and prestige arises from travelling in personal cars as opposed to using public transport. However, the potential tax implications are rather less appealing because the use of company cars is regarded as a taxable benefit to the employee in terms of the law. The envisaged use includes travelling between home and place of work or vice versa or other personal errands of employees.  Choosing a more luxurious car can prove very expensive and disastrous to an employee because the bigger the car the more the taxable benefit. Thus the applicable tax depends on one’s earnings and the engine capacity of the car. Simply put, high earners driving expensive cars will pay the most.  Whilst the employee’s salary may remain fixed, higher taxes may be payable if one opts for a car with higher engine capacity. The recent announcement by the Minister of Finance and Economic Development, Professor Mthuli Ncube through the National Budget Speech of the new motoring of benefits commencing 1 January 2020 is a clear testimony. For instance, for a lower engine capacity of up to 1500cc and a higher engine capacity of above 3000cc the annual taxable benefit will be ZWL$54,000 and ZWL$144,000 respectively. Although the Minister has maintained the value of the taxable benefit this year compared to last year in real terms, the figures in Zimbabwe dollar are shocking and beyond reach for many since salaries and wages in functional currency have not been increased by that margin.  The implication is that some employees may give up company cars or are likely to go home with negative net pay. We do not envisage some employers affording to increase employees’ earnings to cater for the increase in motoring benefits. This is not the only scary point concerning luxury cars in Zimbabwe as discussed below.

The increase in motoring benefit as aforesaid has spill over effects on employers who are VAT registered operators. The motoring benefit is a deemed supply for VAT purposes. The employer will therefore be required to declare VAT based on the new values. This therefore adds to the cost of doing business in the hands of companies that are VAT registered as they will be required to foot more in terms of VAT on motoring benefit. Furthermore, Statutory Instrument 33 of 2019 declared that all values previously expressed in United States Dollar are converted to Zimbabwe dollar on 1:1 basis with effect from the 22^nd of February 2019. This means that the cost base for tax purposes of amounts previously expressed in United States dollar remained fixed in absolute terms despite low purchasing power. This is also confirmed by s2 of the Finance Act no. 2 of 2019 which pronounced that values, figures or symbols contained in the Revenue Acts wherever stated as Untied States Dollar should be read Zimbabwean dollar, values, symbols or amounts. In this case the value for passenger motor vehicles (luxury cars) for purposes of claiming capital allowances was previously fixed at US$10,000 and this value was not changed and accordingly it now reads ZWL$10,000. In real terms the value has tumbled following increase in the foreign exchange rate, the Zimbabwe dollar to the United States dollar. Companies are therefore eligible to claim less capital allowances on luxury cars compared to last year and in actual fact; the capital allowances have become worthless as a tax incentive.

As if this is not enough the government has also restricted the value of duty free importation of luxury vehicles for returning residence to US$5000. Accordingly, returning residents who import motor vehicles in excess of this threshold will be required to pay import duty based on the stipulated rates.  This literally means that the government is banning the free importation of luxury vehicles. It is only making room for cheaper vehicles.

Last year the government introduced the law which designated certain products to be imported and duty paid for in foreign currency. Among this list are luxury motor vehicles. The implication is that importation of luxury motor vehicles now costs more considering that the Zimbabwe Dollar is not at par with the foreign currency charged for duty and they are now beyond the reach of many citizens.

In a nutshell the use of luxury cars is becoming unbearable to both employees and employers. This is further compounded by the rising motor vehicle running costs such as the cost of fuel. We envisage the number of drivers to fall as the luxury car taxes go up. Going forward more people are expected to use public transport under these circumstances. It is no longer cost effective to use luxury cars from both the perspective of employer and employee. Invariably the use of luxury cars has a negative impact on the fiscus in terms of importation bill (in terms of current deficit), the environmental and social impacts. That is; use of more cars may result in increased air pollution, traffic accidents, congestion and noise. Nevertheless; people may find it difficult to report for duty at work unless if a reliable, affordable and efficient transport system is in place. The government initiative on Zimbabwe Passenger Company (ZUPCO) needs upgrading through introducing reliable and efficient passenger trains especially in areas where we already have the railway system.