The acquisition of a motor vehicle by an employee from employer at below market value of the vehicle represents a taxable benefit for to the employee. The taxable benefit to the employee is the difference between the market value of the motor vehicle at the time of sell to the employee and the cost at which the employee acquired the motor vehicle. In determining the market value of the vehicle the Commissioner will have regard to the valuation from a valuer prescribed by him in Gazette or motor dealers. It is advisable to obtain at least 3 quotations or valuations from reputable dealers and use the highest of the 3 to avoid disagreements with ZIMRA. This value must be measured against other quotations obtained from different reputable dealers for the value to be accepted. These quotations are required in terms of the law to be kept for at least six years. This is because the taxpayer has the burden of proof in terms of the law in the event of the Zimbabwe Revenue Authority tax audit. Meanwhile, if the employee is of the age of 55 or above, the benefit will be tax exempted, i.e. no tax liability arises on the benefit. The identification of such person is also a record which should be kept in terms of the law as burden of proof that the motor vehicle was sold to a person who qualified for the exemption.
The consequence of this is that the benefit accruing to the employee through the disposal of the vehicle to him or her at less than market value is a taxable benefit in terms of s8 (1) (f) of the Income Tax Act (Chapter 23:06) which brings into gross income of an employee an advantage he/she receives as a consequence of services rendered. For some employees, this benefit may be out of their reach if their salaries have not been adjusted in line with inflation. This is further compounded by the effect of inflation which will cause the market value of the motor vehicle to be at higher nominal value. Although they may get the motor vehicle at concessionary value from the employer, they may have difficulties in financing the tax emanating from such a concession. The tax should be remitted to the Zimbabwe Revenue Authority by the 10th of the month following the month of sale of motor vehicle to the employee. It is this short lead period that complicates matters. Additionally, the higher nominal value of the motor vehicle will push the tax bracket of the employee into a higher tax bracket and this can further compound the situation for the employee. Whilst there are different options available to employees such as taking a loan to purchase the motor vehicle, this still results in a taxable benefit. If the loan or advance is for free or is below LIBOR plus 5% (albeit a cheaper option because of low interest rate), the benefit is deemed to accrue to an employee and will be processed through the payroll. If the employer pays the tax on behalf of the employee, a concept known as the grossing up, this represents another taxable benefit in terms of the law. In the final analysis, these options may result in indebtedness by employee to employer just for purposes of funding the tax. This is unavoidable largely because of the employment tax tables which have remained fixed since the day they were announced despite the run-away inflation. Therefore a sale of motor vehicle to an employee is currently constrained by the tax burden on the discount due to stagnant tax tables. This impair values and the employee’s capacity to pay the tax accruing on the benefit.
Meanwhile, grossing up poses a challenge for public sector entities. The law makes a provision for the recovery of employee’s tax which is assessed on the public sector entity or an association from the employees and management of such public entity. Where the Commissioner has made an assessment of employee’s tax which the entity has failed to collect and that tax is then paid by the public entity but failed to be recovered from the employees, the Commissioner shall be deemed to be the employer for the purposes of recovering the tax from the employees. Therefore, if a public sector entity grosses up, the Commissioner will still recover the tax on tax from the employee. In short the grossing up in public sector entities is prohibited.
In conclusion, the disposal of the motor vehicle to the employee, will result in the benefit being out of reach for many if the key fundamentals are not addressed. The tax tables must be adjusted regularly in line with inflation. This is not the only item affected by the stagnant employment tax tables. When tax rates are not changed regularly everybody is involuntarily pushed into higher tax brackets especially where they receive earnings or amounts which are market linked. The Minister of Finance should consider quarterly review of employment tax tables to cushion employees from heft taxes.