Marvelous Tapera 
THE lockdowns, which many governments have put in place since the emergence of the Covid-19 pandemic, have placed involuntary trade embargoes within or without their national borders and this has had a severe economic impact especially on establishments relying on actual customer contact.
These are also threatening the livelihood of the low-income earners. There is no doubt that the regulations were completely necessary and unavoidable for the immediate protection of people’s health.
Although some nations continue to impose restrictions, the distribution of the vaccine is giving the world hope in the absence of a universal cure for Covid-19. It is this vaccine that many businesses and societies at large are pinning their hopes on for now, for the return to normalcy. With this mind, some businesses especially those requiring customer contact to survive are pressing their governments for the compulsory administration of the vaccines on everyone.
The narrative is very clear that leaving vaccinations to individuals is one in which personal choice does not necessarily coincide with the public good. Aside this, there are many unanswered tax questions raised by the voluntary administration of the vaccine. Key among them is whether the cost of vaccination incurred by the by an employer on behalf of its employees would constitute a taxable benefit to the employees.
In light of the fact that most governments’ vaccination plan prioritises frontline health workers and other vulnerable sectors, private sector employers are taking charge and are beginning to procure vaccines for their employees. The big concern to them is whether the cost represents an additional compensation of employees subject to payroll taxes or not? Their second worry is whether such cost can be deducted in the computation of their taxable incomes. The latter question is discussed in our next series of “Covid-19 vaccines tax treatment the employer perspective”.
Focusing on the first part of the discourse, the general design of the income tax law is that any amount paid by an employer to its employees has an umbilical cord with the services rendered.
For this reason, the law deems almost all amounts paid by employers to their employees as compensation for services rendered and therefore, subject to employment tax unless the amount is specifically exempted in terms of the law. Furthermore, s 8(1)(f) of the Income Tax Act brings into gross income of an employee of “an amount equal to the value of an advantage or benefit in respect of employment, service, office or other gainful occupation or in connection with the taking up or termination of employment, service, office or other gainful occupation”.
A benefit or an advantage broadly covers board; the occupation of quarters or of a residence, the use of furniture or of a motor vehicle, the use or enjoyment of any other property whatsoever, corporeal or incorporeal, including a loan, an allowance or waiver of school fees in the case of a member of the teaching or non-teaching staff of a “school, a passage benefit (relocation allowance) or anything given in place of a remuneration.
Dorstein has stated that it includes anything given by an employer, which has saved the employee from cashing out of his/her pocket. It also covers amounts or advantages given to a spouse or child of an employee by an employer or an associate of an employee. The Act however, specifically states that a benefit or advantage does not include any amount consumed, occupied, used or enjoyed, as the case may be, for the purpose of the business transactions of the employer or for the connivence of the employer. This is also supported by case the ITC 1626 (1996) 60 SATC 17.
Whether or not the vaccines procured by employers on behalf of their employees are deemed consumed, used or enjoyed for the benefit of the employer is a question of fact. As stated above, the lockdowns have resulted in a number of businesses especially the customer facing ones losing a lost business. There is however, no doubt that these had been necessary and completely unavoidable to preserve the lives of the same customers which the business would rely on for its survival. The administration of the vaccines gives this assurance and is the balancing act to ensure lives are preserved and consequently business survival.
The two are intertwined such that the overall conclusion is that the vaccination is administered also for the connivence of employers. Therefore, the discussion on splitting the benefit between employer and employees becomes an irrelevant economic matter. In the final analysis therefore, the provisions of Covid-19 vaccinations to employees constitutes an exempt benefit in terms of the Act. It can also be regarded as analogous of work place health and safety measures which the employers are required by law to institute in order to ensure safety of their employees and the general community.
This also supports our notion that the benefit should be exempt to employees notwithstanding the fact that some employees may refuse to take the vaccines. The argument for exemption stems from the fact that all employees are equally susceptible to contracting the virus and when this happens this could produce undesired impact on the employer’s production.
It is tax efficient for companies to incur the cost on behalf of their employees. This is because the cost would be deductible to them while at the same time representing an exemption to employees.
If borne by the employee, the expenditure is considered a private expense, which neither qualifies for deduction nor a credit to the employee. Furthermore, having the cost borne by employers aids the government objective of ensuring compliance with the vaccination programme by the majority is attained. We therefore, implore the government to consider providing further fiscal incentives to employers supporting this programme and also bring clarity in the law regarding exemption status in the hands of the employees.
Tapera is the founder of Tax Matrix (Pvt) Ltd and the CEO of Matrix Tax School and he writes in his personal capacity. Meanwhile, Matrix Tax School (Pvt) Limited hosts a webinar short course in Managing Tax Practice (Basic Theory & Practice) every Wednesday and Saturday.
