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What constitutes a taxable advantage or   benefit? The terms advantage or benefit are defined under Section 8(1) (f) of the Income Tax Act (Chapter 23:06) (Income Tax Act).  These include a number  things (corporeal or incorporeal) that can be offered by an employer (or on his behalf)  to an employee  in lieu of or in the nature of “remuneration” as defined in paragraph 1(1) of the Thirteenth Schedule of the  Income Tax Act.

What are the examples of taxable benefits or advantages?

The following are some of the examples :

Boarding or accommodation facilities

Use of furniture

Provision of company motor vehicle or use of or the enjoyment of any other property

Allowances

Payment of school fees or granting of free  education to children of staff members

Provision of staff meals and entertainment

The supply of security services

The supply of cell phone allowance (air time , data bundles , internet facility , parking fees )

Payment of water and electricity bills

Subscriptions for DSTV

Subscriptions to  golf clubs

Supply of gym facilities

Payment of gym fees and other recreation facilities

It is therefore important to highlight that the examples given above are not exhaustive and depend on the contracts of employment or arrangements entered into by the employer and employee.

What is the correct treatment of taxable benefits for Value Added Tax purposes?

In terms of Section 17(3) of the Value Added Tax Act (Chapter 23:12)(VAT Act), any registered operator who grants  or is deemed to have provided  a benefit or advantage to an employee or holder of any office in terms of section 8 (1) (f) of the Income Tax Act, is deemed to have supplied goods or services in the course of trade. The registered operator is therefore required to account for output tax in respect of the goods or services granted to such employee.

Are all benefits or advantages subject to Value Added Tax?

Not all benefits or advantages are subject to VAT. The following benefits should not be subjected to VAT:

The supply of any goods and services which are exempt from VAT  in terms of the Section 11 of the VAT Act, such as residential accommodation

Supply of  zero rated goods such as sugar, bread

The supply of motor vehicles by an employer who is in the business of making exempt supplies e.g. educational institution which is also not supposed to register for VAT

School fees benefit

Supply of any educational services

Treatment of specific and common  benefits granted  by employers to employees

Goods and services acquired for entertainment purposes

The term “entertainment” is defined in Section 2 of the Value Added Tax Act and includes the provision of any food, beverages, accommodation or recreation.  It should therefore be noted that the definition includes staff canteens and other entertainment costs that may be incurred by the employer for staff functions of any nature. VAT input tax credit is denied ‘to the extent’ that the goods/services are used in the provision of entertainment. Where there is partial use of such goods and services, input tax is allowed to the extent that the goods or services are applied in making taxable supplies.

VAT on Deemed motoring  benefit

The deemed motoring benefits are subject to Value Added Tax and below is a short illustration on how the VAT should be calculated for 2018 and  2019 tax years:

VAT due per month is determined by applying the tax fraction to the deemed benefit per month i.e. 15/115 x Deemed Benefit per month and the declarations is included on the VAT return (VAT 7).

Our valued clients are hereby advised that the examples given above are not exhaustive. They are therefore urged to seek clarification or information on the correct tax treatment of peculiar benefits or advantages at their nearest Zimbabwe Revenue Authority offices or usage of the communication channels and other means supplied on our website below.

Disclaimer: This article was compiled by the Zimbabwe Revenue Authority for information purposes only. Zimra shall not accept responsibility for loss or damage arising from use of material in this article and no liability will attach to the Zimbabwe Revenue Authority.

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