Finance Minister Pravin Gordhan could save the South African Revenue Services (SARS), businesses and employees a great deal of time and hassle by phasing out travel allowances that companies pay to employees as part of their salary packages. Though radical and likely to be unpopular in some quarters, this proposal could ease tax compliance for companies and employees while making life simpler for SARS.
That's the word from Rob Cooper, Tax Expert and Director of Legislation and Proposed Legislation at Sage HR & Payroll, South Africa's market leader for integrated payroll & HR systems, who proposes that the existing mechanism of travel reimbursements replaces travel allowances in the years ahead. This simple change is near the top of his wish list for Minister Gordhan's Budget Speech this year. Cooper says travel allowances add little value for anyone in the equation because they are widely misunderstood and difficult to administer.
"Millions of entrepreneurs in the world's small and medium businesses trust us as they power the global economy," says Cooper. "Lobbying government to simplify tax is one way we at Sage are fighting for the voice of the entrepreneur in South Africa."
"We believe that the travel allowance causes a great deal of strain on the SARS call centre, simply because it confuses employers and employees alike," he adds. "It's inefficient to administer, and accidental non-compliance and purposeful abuse are widespread. It is entirely feasible to phase it out completely."
Cooper says that many organisations grant travel allowances to employees as part of their packages when they actually are not legally eligible for the benefit. Employers are also tempted to inflate the value of the travel allowance because it is difficult to estimate realistically. This can lead to unpleasant tax shocks for employees down the line when their actual business travel mileage comes in under the amount the employer's estimates at the end of the tax year.
Alternatively, employees can end up waiting for money which is rightly theirs because they might overpay PAYE and need to wait for a SARS refund. This is because employers must allocate a portion of the travel allowance to private use (which is subject to PAYE withholding) when calculating remuneration for PAYE purposes; and they often underestimate the kilometres employees travel for work in a month.
Furthermore, a travel allowance as part of an employee's package is not in line with the principles of South African labour law. The reason for this is that it effectively means that an employee pays a part of the employer's business travels expenses from his or her salary, says Cooper.
Another challenge is that many employers and employees struggle to distinguish between the concepts of personal and business travel. This means that many employees are unable to maintain a tax-compliant logbook to report their business travel at the end of the year, and may misreport the kilometres they travel.
Cooper says that travel reimbursements are a better option than travel allowances because they are widely understood by employers and employees, and easier to administer. There is more clarity for everyone, which could spell fewer admin headaches and lower costs for SARS and employers. Better employer and employee understanding will also translate into improved compliance levels.
Follow us on @SageGroupZA on 24 February for LIVE expert insights from the annual Budget Speech. #Budget2016
Share