Marvelous Tapera 
UNDER the current difficult economic environment, employers may wish to cushion their employees by giving them loans where financial institutions are hesitant to do so because of the high default rate.
A further advantage of employer provided loans is that they are cheaper than the traditional bank loans. Employer loans are also valuable to some employees who may not qualify for these traditional loans, making them a source of help when no other avenue is available. Employees also like this benefit because payments can be made through automatic payroll deductions, making them simple and administration-efficient compared to loans accessed through banks.
According to the strict letter of the law, a tax charge will arise where a director or employee obtains a benefit by reason of their employment when they, or any of their relatives, is given a cheap or interest-free loan.
The law has stipulated this advantage as the difference between interest at the appropriate “official rate” (currently Libor + 5 percent) and the interest, if any, actually paid by the employee.
Such loans are called beneficial loans. Libor stands for London Interbank Rate.
This rate applied equally to both the US$ and Zim$ denominated loans prior to January 1, 2021. However, this has been revised through Finance Act 2 of 2020 effective this date in so far as the Zim$-denominated loans is concerned. Therefore, effective this year, the official rate for the Zim$ loan has been increased to 15 percent.
Employers are advised to adjust their payrolls to effect this change to ensure they remain tax compliant. They may opt to revise loan agreements to ensure the interest charged to employees matches the new rate if they wish to have their employees exempt on the benefit.
The increase in the rate will result in additional income to the employer and an outflow to the employee. If the rate is not changed, the employer must account for tax on their benefit i.e. the difference between 15 percent and the lower interest rate paid by the employee.Both options impose financial burden on the employee but leaving the rate as it is may be cheaper, compared to adjusting it to the new official rate.
New loans, however, should be established at the new rate, if the policy is to afford employees tax fee loans. The interest rate for the US$ loans remain fixed at Libor plus 5 percent.
Meanwhile, the threshold for Zim$ tax free loans has also been revised to ZWL$8 000 and the US$100 for US$-denominated loans remains the same.
A pertinent issue that may arise is what determines whether the loan is in US$ or the local unit. This may particular arise in a situation where the employer advanced the loan to the employee in US$ but the employee makes the payment in ZWL$ or vice versa.
This is a very likely scenario considering that a great number of businesses who receive their revenue in both currencies may remunerate their staff in one currency or a combination of both. In our view, a foreign currency loan means that you borrow in foreign currency and repay in the same currency. What therefore determines the currency of the loan is the ultimate currency, which is used by the borrower to repay the loan.
Thus, if an employee was advanced a loan by the employer in foreign currency and uses his/her Zimbabwe dollar remuneration to repay the loan, this may be deemed a Zim$ loan. This would be imperative in determining the prescribed interest rate to be used hence in the calculation of the benefit We, however, implore employers to consult their legal experts on this matter.
In conclusion, employers must always ensure that when they give an employee anything that saves him/her from taking out of his/her pocket, they must include this in the payroll as this constitutes a benefit in terms of the law. This may be for the benefit of the employee, his/her spouse or child. Without limiting to the generality, an advantage or benefit can take a form of a board, occupation of quarters or residence, or the use of furniture or motor vehicle.
It also includes the use of or enjoyment of any other property whatsoever, corporeal or incorporeal, including a loan, an allowance, passage benefit and any other advantage or benefit whatsoever in lieu of remuneration. Most of these benefits are valued at cost to employer except those whose value is prescribed in terms of the law such as the motoring benefit, interest free or subsidised employer loans etc.
The case of six private schools vs. the CG of Zimra (HH314-16) held that the term cost to the employer includes both the variable and fixed cost incurred by the employer to ensure the provision of the benefit to the employee. Lastly, the omission of benefits or miscalculation may prejudice the revenue authority and may have serious ramifications on companies’ standing with the taxman.
● Tapera is the Founder of Tax Matrix (Pvt) Ltd and the chief executive of Matrix Tax School. He writes in his personal capacity. Matrix Tax School (Pvt) Limited hosts a webinar short course in Managing Tax Practice (Basic Theory & Practice) every Wednesday and Saturday.
