3 - 9 May 2001

Fringe benefits tax posing serious difficulties

The issue of taxation on fringe benefits, emerging from the last Budget, continues to pose serious difficulties on the local commercial community, according to the editorial of the April issue of The Commercial Courier.
The Chamber, the editorial states, has always stood for fiscal morality and does not, in principle, object to taxing fringe benefits when these are intended specifically to give an unfair tax advantage to the beneficiary. Nevertheless, it has reservations on the way in which some aspects of this tax are now being implemented and enforced.
“The implementation of a measure of this nature which has existed but not enforced for a large number of years requires a studied approach, a more gradual implementation and enforcement with adequate notice after the
regulations are agreed upon through proper consultation. Unfortunately, there was no proper consultation on this subject at MCED level where a number of other measures were discussed in detail in anticipation of Budget 2001,” the editorial says.
“Furthermore, in a number of areas the new rules impose tax burdens which go well beyond what is expected from a reasonable interpretation of the current Section 4 (1)(b) of the Income Tax Act. In simple terms, this means that government is effectively imposing additional tax burdens on employees which may ultimately increase the costs of operation to employers.”
Following numerous discussions, the primary objection to the private sector was the treatment of property in the first version of draft guidelines received from the Inland Revenue Department (IRD) in December. At this early stage, the government intended to tax the beneficiary of accommodation at the rate of 7.25 per cent on the higher of the market value or the original cost of the property. Following discussions with the government, the latter agreed to lower this rate to five per cent, the editorial said.
With respect to other categories of fringe benefits, Chamber representations resulted in eliminating undue discrimination between beneficiaries of cars which were owned by their employers and others whose vehicles were leased from third parties. The government also agreed with Chamber arguments related to increasing the maximum permissible allowance for long service awards. Representations were also successful in lowering certain rates of private use value related to car benefits and in the treatment of vehicle depreciation. The government also agreed to increase the percentage of voting rights required for a person to be deemed to be in a controlling position for the purposes of legal definitions.
The Chamber also criticised taxation on measures aimed at enhancing productivity through employee motivation as those related to Share Option Schemes. This measure is perceived to act against the principle of employee participation and hence as a disincentive to effort.
The Chamber considers that the implementation of taxation on certain fringe benefits will serve to disturb and extract further funds from the tax abiding public while failing to tap the operators in the underground economy.