adminA number of fringe benefits granted to an employee under a contract of employment constitute remuneration and should be subjected to employee tax.
This article focuses on the taxation of loan benefits.What is a loan?
It is any form of credit whatsoever granted directly or indirectly to an employee, his spouse or child by or on behalf of the employer or a person associated with the employer.
This does not include any credit granted for the purposes of the education or technical training or medical treatment of such employee. The exclusion is, however, subject to the satisfaction of the Commissioner General.
How does a loan
benefit arise?
A benefit arises where the rate of interest payable on the loan is less than the prescribed rates, that is less than the London Interbank Offered Rate rate plus five per cent (5 percent) per annum and where the amount of the loan exceeds US$100.
Where the employer charges an interest rate which is more than the prescribed rate of interest, there is no taxable benefit. A benefit may also arise where all or a portion of the loan is written off by the employer.
How is the loan
benefit valued?
The value of the benefit is determined by computing the difference between the interest rate charged by the employer and the prescribed rate of interest, multiplied by the loan amount and the number of days in which the loan is enjoyed.
In cases where the employer advances a loan to an employee and writes off all or a portion of that loan, both the full amount written off and the computed loan benefit is taxed in the hands of the employee.
Where do you find the Libor rates?
Libor rates can be downloaded from the Zimra website (www.zimra.co.zw). The table below shows the Libor rates for the period from January-June 2013.
NB: Five percent should be added to the rates shown on the schedule above to determine the prescribed rate of interest charge-able on the loan for each month.
Illustration
Example: A loan of US$10 000 was extended to an employee by an employer at an interest rate of 1 percent per annum on January 1, 2013. The loan was to be repaid over six months in equal instalments with effect from January 31, 2013.
Interest accrued on the loan was to be paid on 30th June 2013. The employer, however, decides to write off the final repayment instalment of US$1 670 and the interest accrued on the loan.
The loan benefit to be included in the taxable income of the employee is calculated as follows:
Month Computation Interest Taxable January (5.489-1)/100
*10 000*30/365 $8,22 $36,90
February (5. 4634-1)/100
*8334*28/365 $6,39 $28,53
March (5. 4477-1)/100
Z*6668*31/365 $5,66 $25,18
April (5. 4364-1)/100
*5002*30/365 $4,11 $18,23
May (5.4214-1)/100
*3336*31/365 $2,83 $12,53
June (5. 414-1)/100
*1670*30/365 $1,37 $6,06
June $28,58
Total for June $1670+$28,58+$6,06
$1704,64
NB: In June, the employee is taxed on a total benefit of US$1 704,64
Reminder for
payment of tax
Our valued clients are reminded that the PAYE for the month of July is due on or before August 10, 2013.
Disclaimer: This article was compiled by the Zimbabwe Revenue Authority for information purposes only. Zimra shall not accept responsibility for loss or damage arising from use of material in this article and no liability will attach to the Zimbabwe Revenue Authority.
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