Are We All Equal?
04 March 2010
Posted by: Author: Paul Gering
Are We All Equal?
As parents we all tell our children to do what we say and not as we do. It appears that the parliamentarians have a similar approach especially with tax legislation and fringe benefits.
Many people will remember the days,not so long ago, when they received an entertainment allowance, a cellphone allowance, a computer allowance and a home office allowance. You will recall how you used to claim these deductions in your tax return.
The legislative (the parliamentarians) duly voted that this made the Income Tax Act very difficult to administer and so ended your ability to claim these deductions as salaried employees.
It must come as a surprise to see that a certain select group of taxpayers felt that their claims were not too onerous for the South African Revenue Service.Section 8 (1) (d) allows any holder of public office a deduction in respect of secretarial services, duplication services,stationery, postage, telephone, hire of office,and entertainment amongst other things.
Holders of public office
It is worth noting that the following all fall into the category of Public Office:
The President, Deputy President, a Deputy Minister; a member of the National Assembly; a permanent delegate to the National Council of Provinces; a Premier; a member of an Executive Council,or a member of a provincial legislature; any member of a municipal council, a traditional leader, a member of a provincial House of Traditional Leaders and a member of the Council of Traditional Leaders; and a person occupying the office of president, chairman or chief executive officer of any non-profit making organisation which is organised on a national or regional basis to represent persons with common interests and the funds of which are derived wholly or mainly from subscriptions of members or donations from the general public.
As a consequence, parliament has structured an allowance (not subject to PAYE) as part of the parliamentary salary to defray such expenditure which other wise would not be allowable as a deduction.Originally this allowance (tax free) was R40 000 per annum but this was increased to R120 000 per annum following the report of the Independent Commission for the Remuneration of Public Office Bearers.
An extract taken from the Proclamations dated 12 November 2008:
2. The total remuneration packages should include the following elements:
2.1 Basic salary component equal to 60% of the total package, which is pensionable;
2.2 An amount of R120 000 per annum which is an amount to which section 8 (1 (d) of the Income Tax Act, 1962, applies.
This amount is included in the basic salary component;
2.3 An employer ’ s pension benefit contribution equal to 22.5% of pensionable salary, and a
2.4 Flexible portion.”
We all know that when an employer provides you with the use of a vehicle there is a consequence of perks tax or a fringe benefit.
• Car One - 2,5% of deemed value
• Car Two - 4,0% of deemed value
In commerce and industry, if you are in receipt of a car allowance and your employer also provides you with a company car, the fringe benefit on the vehicle is at a higher rate than normal.In this case, the correct fringe benefit would be:
• Car One – 4,0% of deemed value
• Car Two – 4,0% of deemed value
I understand that ministers have been provided with a travel allowance in addition to the use of two vehicles and question if the correct fringe benefit rates as set out above have been applied.
The fringe benefit of the ministers should be:
‘Standard’ Ministerial Vehicle One
• R750 000
• Annual fringe benefit
• R360 000
‘Standard’ Ministerial Vehicle Two
• R700 000
• Annual fringe benefit
• R336 000
The tax on this fringe benefit would beR23 000 per month based on an income at the top marginal rate.
The question has previously been raised but has not been answered completely and publically. Do the cabinet members pay fringe benefit tax calculated in line with the above calculations on the use of the two very expensive vehicles they choose and are provided with.
It is understood that ministers have been provided with security services.Has the Secretary of Parliament considered the fringe benefit in respect of this service that is utilised for his private or domestic purposes?
In terms of the 2007 Ministerial Handbook, the following costs are paid in respect of privately owned residences at the seat of office:
• Garden services
• Water and electricity
The following is allowed in respect of travel and transport:
• Claim for official kilometres in excess of 500 kilometres in private vehicle;
• Discretionary use of air tickets: 30 per annum in business class and 6 per annum for children in economy class.
Once again, the question as to whether cabinet ministers account for tax on the various fringe benefits set out above needs to be answered clearly and publicly.I wonder if the fact that parliamentarians do not have a fringe benefit would constitute a ruling from the South African Revenue Service that such services provided by an employer to an employee are not fringe benefits.
In the past it was clear; the salary of the State President was tax free.We all thought the bold move to tax the Head of State showed that we were all equal. It appears that the tax treatment of ministers and parliamentarians is still different and more beneficial than ordinary citizens.
Tax morality was addressed by Parliament with various tax and foreign exchange amenities.Tax morality will, however, be fully addressed only when South Africans are satisfied with the allocation of resources, the limitation of corrupt activities and an equal tax treatment of all taxpaying employees.
Source: By Paul Gering (TaxTalk)