The revision of Zimbabwe dollar motoring benefits
The subject of motoring benefits falls under the ambit of what is commonly named as “fringe benefits”. These are awarded to the employee by the employer to save the employee from taking out of their pocket. It must be granted in respect of office or to a holder of an office or in respect of employment services or other gainful occupation. In order to determine whether or not the right to use of company car is subject to a particular tax rate; taxable benefit is determined using engine capacities of the particular company car. Currently the law stands unchanged pertaining the United States Dollar (“USD”) rates in connection to motoring benefits. Therefore, if income is partly or wholly in foreign currency, the USD rates are to be applied. Zimbabwean dollar values are exclusively for use by those earning in local currency. However, there are new proposed values that have been prescribed by the Minister of Finance and Economic development within the Finance bill which is currently being discussed in the House of Assembly pertaining to Zimbabwean dollar motoring benefits. The lower limit will be ZWL$321,500 and the upper limit ZWL$830,000 per annum, up from ZWL$81,000 and ZWL$216,000 per annum respectively.
Most employers and employees might be stricken by some level of uncertainty and wondering what it means to have the ZLW$ tables changed. It will be feasible to allude to the fact that the economic state and fluctuating rates have played an influencing role in the new prescribed values. It would only be practical to align with the bank rates so as to curb a state whereby taxes are unreasonable. An analysis of the proposed prescribed Zimbabwe dollar motoring benefits tables shows these will be much lower than their corresponding USD rates if the Zimbabwe dollar tables are to be converted using the USD bank rate. This portrays a green flag for those earning the benefits in local currency and a red flag to those earning partly or wholly in foreign currency. Companies issuing company cars must pay attention to these new rates when issuing out the benefits to the Employees. Assuming the bank rate continues to depreciate the Zimbabwean dollar, motoring benefits will maintain its attractive nature to the taxpayer in comparison to the Actual USD Motoring benefits.
A question that might cloud taxpayers’ mind is the definition of what is known as “Private use”. The law has defined this as any right to use a company car by an employee between their place of work and the home and vice-versa. This particular umbrella also covers use of company cars by employees on standby. What this therefore means is that as long as the car has been to the employees’ house it will be deemed as a motoring benefit. Although this is paid by the employer, costs such as licenses, insurance, fuel, repairs and maintenance or other cost of maintaining the vehicle also incur to the benefit of the employee. These will not amount to additional taxable benefit. The employer will have to allocate things such as fuel based on grades or nature of work in each grade to accumulate an advantage, property recorded and business usage justified. An excessive fuel allocation especially to senior management may then be viewed as additional remuneration and may be taxed separately from the Motor vehicle benefit.
Where an employee does not have a company car but is awarded fuel for use in their own car, the benefit accumulating as a result of the cost of the fuel to the employer will be subject to income tax. Generally, this implies therefore that fuel awarded to an employee who uses it on his own personal care is regarded as a benefit under employee’s benefits. Accordingly, an employer is bound to value and include in the payroll the cash equivalent of the value of every taxable benefit. An exception will be afforded to an employee, in the event where they have not been in use of that company car in that particular month. Where the right to use of a company car is benefitting two people at the same time be it for private or domestic purposes the benefit is taxable based on the engine capacity of the car provided. The only dispensation available to avoid double taxation on that particular benefit, is for employer to track the days that each employee would have been in possession so as to apportion the benefit based on the usage.
Ever since 2021, we have seen government reducing motoring benefits which is benefitting the taxpaying community and their employers. This promotes use of company cars. Meanwhile, Government has not done much to increase the non-taxable threshold which could otherwise benefit low-income earners. Whilst the motoring benefit is a good policy, in our view, the low-income earners should have been preferred than those who are entitled to use of company cars. In most cases the latter has much more capability to pay tax than the former.