Payroll and tax benefits in Southern Africa Payroll and tax benefits in Southern Africa

Payroll and tax benefits in Southern Africa
30 Nov 2015

Should we payroll benefits or not payroll benefits? Tax benefits or not tax benefits? These remain two questions that are foremost in the minds of all payroll managers around the globe, including Southern Africa

With increased employee mobility it is important for payroll managers to have an understanding of the process in different regions.

There has been much discussion in the UK in the past two years regarding draft legislation on new benefit measures. So whilst the UK is looking at this legislation what are some of the countries in Southern Africa doing regarding benefits?

South Africa

A good starting point is at the very southern section of Africa. South Africa has been processing benefits through the payroll for some years. The local tax authorities and SARS South African Revenue Services (SARS) has continuously revised legislation and issued detailed Interpretation Notes and guidelines which detail how benefits are to be taxed and the rules relating to the limits and nature of tax-free benefits.

A taxable benefit is deemed to have been granted to an employee if the employee is granted one of the benefits listed in the Seventh Schedule of the Income Tax Act. These can be summarised into 12 categories:

• Providing the employee with an asset for less than the actual value of the asset (money excluded)
• The private use of a company motor vehicle
• Providing the employee with the right to use an asset (excluding a motor vehicle and residential accommodation)
• Providing the employee with free meals, refreshments or meal and refreshment vouchers 
• Providing free residential accommodation
• Providing free or cheap services to the employee
• Providing low or interest free loans to the employee
• Paying for an employee‘s debt or releasing the employee from the obligation to pay a debt
• Medical fund contributions paid on behalf of an employee or medical costs (other than contributions) paid for the benefit of an employee
Contributions to a benefit fund and/or payment to an insurer under an insurance policy made for an employee
• Providing a subsidy in respect of loans (interest or capital repayments)
• Providing benefits to a relative of the employee.

Benefits are reported on an annual employee tax certificate (IRP5) which has to be provided to the employee at the end of the tax year. The benefits are reported under specific codes which are detailed in the guidelines.

The employer has a legal obligation to tax the employee on the taxable value of benefits (known as fringe benefits) on a monthly basis. There has been continued responsibility placed on the employer to ensure that benefits are handled correctly and that tax is correctly withheld from the employees’ earnings to cover the liability. Failure to comply could result in penalties imposed by SARS on the employer.

These penalties are generally a percentage of the liability and can be rather large in monetary value. It is therefore imperative that the employer ensures that the payroll system is correctly implemented to tax benefits correctly.

Swaziland

Moving further north inland to Swaziland, we find that benefits are currently taxed and reported via the payroll as well. There has been a steady increase in the proportion of the benefits that needed to be included in taxable income over a period of time.


Again, the value of any benefit or advantage accruing by way of employment, needs to be included in the gross income of an employee and this is in terms of Section 7(f) of the Income Tax Order 1975.

The second schedule makes it compulsory for employers to deduct PAYE at source on benefits provided to employees. Legislation updates issued by Swaziland Revenue Authority (SRA) provides the employer with the details required to administer the payroll correctly.

The categories of benefits are:

• Free or subsidised accommodation or housing
• Motor vehicle benefits including aircraft benefits
• Utility benefits (water, gas, electricity, coal)
• Children’s educational assistance benefits
• Soft loans (interest free loans or interest charged at less than the prevailing interest rates)
• Meals, refreshments and entertainment
• Debt waivers
• Property transfers
• Medical aid contributions paid by the employers
in excess of two-thirds of the total contribution
• Miscellaneous benefits (any benefit in kind
enjoyed by the employee where the cost is borne by the employer).

Once again there is a legal obligation on the employer to ensure that the correct proportion of the benefits are included in taxable income and the employee is taxed on these benefits on a monthly basis. The benefits are reported on the annual tax certificates (PAYE5), which the employer provides to the employee.

Botswana

Also to the north of South Africa is Botswana, where again the obligation rests with the employer to ensure that all non-cash benefits granted to an employee are included in the taxable earnings and therefore are subjected to monthly PAYE. Non-cash benefits include the following employer incurred expenses on behalf of the employee:

• School fees
• Utilities
• Motor vehicles
• Housing
• Furniture and furnishings
• Interest free and concessionary interest loans
• Shares at lower than market values
• Any other benefit in kind.

By now we can see a trend emerging of the employer being responsible for ensuring that the correct taxes are accounted for via the payroll for benefits granted to an employee as a result of an employment relationship.

It is also evident that the countries have very similar expenses which they consider to be benefits and similar methods of dealing with the benefits. Included below is a table summarising these three countries in southern Africa.

Employers and payroll managers need to ensure payrolls are designed to correctly record and tax benefits in line with the local legislation to reduce the financial risk of penalties and interest as a result of non-compliance.

 

Country

Benefits processed

via payroll

Legislation covering benefits

How are benefits

reported at tax year end

South Africa

Yes

Seventh Schedule of Income Tax Act No.58

of 1972

IRP5 (with earnings)

Swaziland

Yes

Section 7 (f) of the Income Tax Order 1975;

Practice Note No. 157, Taxation of Benefits

in Kind and Certain Allowances Arising

from Employment Notice, 2007

PAYE 5

Botswana

Yes

Fifth Schedule of the Income Tax Act; Part

III Tax Tables and Guidance notes

ITW 8

 

 

By Sharon Tayfield
Praxima Africa Payroll Systems (Pty) Ltd

 

 

Should we payroll benefits or not payroll benefits? Tax benefits or not tax benefits? These remain two questions that are foremost in the minds of all payroll managers around the globe, including Southern Africa

With increased employee mobility it is important for payroll managers to have an understanding of the process in different regions.

There has been much discussion in the UK in the past two years regarding draft legislation on new benefit measures. So whilst the UK is looking at this legislation what are some of the countries in Southern Africa doing regarding benefits?

South Africa

A good starting point is at the very southern section of Africa. South Africa has been processing benefits through the payroll for some years. The local tax authorities and SARS South African Revenue Services (SARS) has continuously revised legislation and issued detailed Interpretation Notes and guidelines which detail how benefits are to be taxed and the rules relating to the limits and nature of tax-free benefits.

A taxable benefit is deemed to have been granted to an employee if the employee is granted one of the benefits listed in the Seventh Schedule of the Income Tax Act. These can be summarised into 12 categories:

• Providing the employee with an asset for less than the actual value of the asset (money excluded)
• The private use of a company motor vehicle
• Providing the employee with the right to use an asset (excluding a motor vehicle and residential accommodation)
• Providing the employee with free meals, refreshments or meal and refreshment vouchers 
• Providing free residential accommodation
• Providing free or cheap services to the employee
• Providing low or interest free loans to the employee
• Paying for an employee‘s debt or releasing the employee from the obligation to pay a debt
• Medical fund contributions paid on behalf of an employee or medical costs (other than contributions) paid for the benefit of an employee
Contributions to a benefit fund and/or payment to an insurer under an insurance policy made for an employee
• Providing a subsidy in respect of loans (interest or capital repayments)
• Providing benefits to a relative of the employee.

Benefits are reported on an annual employee tax certificate (IRP5) which has to be provided to the employee at the end of the tax year. The benefits are reported under specific codes which are detailed in the guidelines.

The employer has a legal obligation to tax the employee on the taxable value of benefits (known as fringe benefits) on a monthly basis. There has been continued responsibility placed on the employer to ensure that benefits are handled correctly and that tax is correctly withheld from the employees’ earnings to cover the liability. Failure to comply could result in penalties imposed by SARS on the employer.

These penalties are generally a percentage of the liability and can be rather large in monetary value. It is therefore imperative that the employer ensures that the payroll system is correctly implemented to tax benefits correctly.

Swaziland

Moving further north inland to Swaziland, we find that benefits are currently taxed and reported via the payroll as well. There has been a steady increase in the proportion of the benefits that needed to be included in taxable income over a period of time.


Again, the value of any benefit or advantage accruing by way of employment, needs to be included in the gross income of an employee and this is in terms of Section 7(f) of the Income Tax Order 1975.

The second schedule makes it compulsory for employers to deduct PAYE at source on benefits provided to employees. Legislation updates issued by Swaziland Revenue Authority (SRA) provides the employer with the details required to administer the payroll correctly.

The categories of benefits are:

• Free or subsidised accommodation or housing
• Motor vehicle benefits including aircraft benefits
• Utility benefits (water, gas, electricity, coal)
• Children’s educational assistance benefits
• Soft loans (interest free loans or interest charged at less than the prevailing interest rates)
• Meals, refreshments and entertainment
• Debt waivers
• Property transfers
• Medical aid contributions paid by the employers
in excess of two-thirds of the total contribution
• Miscellaneous benefits (any benefit in kind
enjoyed by the employee where the cost is borne by the employer).

Once again there is a legal obligation on the employer to ensure that the correct proportion of the benefits are included in taxable income and the employee is taxed on these benefits on a monthly basis. The benefits are reported on the annual tax certificates (PAYE5), which the employer provides to the employee.

Botswana

Also to the north of South Africa is Botswana, where again the obligation rests with the employer to ensure that all non-cash benefits granted to an employee are included in the taxable earnings and therefore are subjected to monthly PAYE. Non-cash benefits include the following employer incurred expenses on behalf of the employee:

• School fees
• Utilities
• Motor vehicles
• Housing
• Furniture and furnishings
• Interest free and concessionary interest loans
• Shares at lower than market values
• Any other benefit in kind.

By now we can see a trend emerging of the employer being responsible for ensuring that the correct taxes are accounted for via the payroll for benefits granted to an employee as a result of an employment relationship.

It is also evident that the countries have very similar expenses which they consider to be benefits and similar methods of dealing with the benefits. Included below is a table summarising these three countries in southern Africa.

Employers and payroll managers need to ensure payrolls are designed to correctly record and tax benefits in line with the local legislation to reduce the financial risk of penalties and interest as a result of non-compliance.

 

Country

Benefits processed

via payroll

Legislation covering benefits

How are benefits

reported at tax year end

South Africa

Yes

Seventh Schedule of Income Tax Act No.58

of 1972

IRP5 (with earnings)

Swaziland

Yes

Section 7 (f) of the Income Tax Order 1975;

Practice Note No. 157, Taxation of Benefits

in Kind and Certain Allowances Arising

from Employment Notice, 2007

PAYE 5

Botswana

Yes

Fifth Schedule of the Income Tax Act; Part

III Tax Tables and Guidance notes

ITW 8

 

 

By Sharon Tayfield
Praxima Africa Payroll Systems (Pty) Ltd