The employment relationship is coupled with a number of duties and obligations by either party but one other aspect that employers use to motivate their employees is that of fringe benefits because they reduce expenses for employees. Fringe benefits are brought into gross income in terms of s8 (1) (f) of the Income Tax Act. The law defines a benefit or advantage in relation to employment as 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. This implies anything that has saved an employee from taking out of his or her own pocket. Common employment benefits in Zimbabwe include housing, use of furniture, motor vehicle, loan, telephone or cellphone, domestic worker or gardener, security services, fuel coupons, school fees, passage benefit, medical cover, pension cover, holiday, airtime and entertainment allowance. With the coming in of Covid 19 and working from home becoming a new norm, taxability of some of these fringe benefits has come under the spotlight and other aspects that may not necessarily fall under the fringe benefits bracket may have since become relevant. We take stock of motor vehicle use in the wake of Covid 19 and build a case whether to continue or discontinue taxation of this benefit.
Motoring benefit arises where an employee is granted the right of private use of the employer’s vehicle. Private usage of the vehicle includes travelling between home and place of work, the use of the vehicle during weekends and holidays. In the case of Butcher it was held that the mere parking of the vehicle at the employee’s residence will give rise to car benefit. Meanwhile, the Income Tax Act does not provide any other method of reducing the deemed cost for usage of the motor vehicle except if it was used was less than the year of assessment. It follows therefore that employees will be taxed for use of motor vehicles during the lockdown for as long as they are or were using the vehicles for personal use. A taxable benefit will generally arise on each day when the car is garaged at the employee’s residence—even if the employee does not use the car on that day. In other words, if employees are not using a car in the way that they usually would because of COVID-19 restrictions, a liability for PAYE can still arise. For most employees, working from home came as a cost-cutting measure but those employees with company vehicles will still incur the tax for use of the vehicle
The Zimbabwe Revenue authority will not see cars as “available” for benefit-in-kind tax purposes if employees are able to hand the car back to their employer – by posting their keys, for example. Holding on to a company car cannot help the employee as long as the car is garaged at the employee’s premises. Adjustments are usually made to the benefit-in-kind tax deductible from an employee’s salary if the company car was not available; if they were in for repair, for example. In practice this does apply if the period the car is unavailable is less than 30 days.
The situation is different when it comes to private mileage fuel. Whilst the company car cannot be difficult to withdraw the private fuel benefit can be, as this does not need a physical return of the fuel card. It will, however, need a change of policy and employee agreement to proportionally reduce their benefit while the car remains unavailable. Employers should also consider revising their policies around private fuel benefit in order to prevent employees from being taxed on a benefit they cannot use. To facilitate the process employees should keep logbooks and record the number of kilometres travelled when the vehicle is used for business purposes. The number of kilometres travelled when the vehicle is used in a private capacity is therefore equal to the difference between the total number of kilometres travelled and the number of kilometres travelled when the vehicle is used for business purpose. The amount of the taxable benefit corresponds to the ratio of the cost of the vehicle and the kilometres travelled, multiplied by the private kilometres. Preferably, this should be calculated monthly.
It can therefore be concluded that the benefit arising from the right of use of company cannot be diminished by having the car parked at home owing to Covid 19. Our laws are not flexible enough to remove this benefit due to circumstances imposed on employers and employees by Covid 19. Meanwhile motoring benefit is not the only one affected by the restrictions. There are other benefits such as the airtime, accommodation etc which would need to be evaluated case by case. Employers and employees should therefore be vigilant to ensure they do not continue to pay taxes on a benefit which has been made redundant due to Covid 19 or other like circumstances. Considering the novelty nature of the COVID 19 and lack of preparedness for it in terms of laws and administrative systems, we implore the authorities to provide guidance on the current laws so that they suit the times and realities that taxpayers are facing. This is to ensure certainty in the tax treatment of benefits as the circumstances in which the laws were drafted have since been shifted by the new order.