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Empoyer provided meals are taxable

Publishing Date : 17 September, 2019

JONATHAN HORE

Some employers have arrangements where they provide their employees with free or subsidised meals. Such arrangements may be done for various reasons such as considering the remoteness of the workstation especially for some mines or improvement of staff welfare.


I want to show you that such meal arrangements may result in PAYE in the hands of the employees. These meals are taxed as free benefits as there is no cash involved but the employees enjoy a benefit. For the avoidance of doubt, the tax we will discuss today is PAYE or employees’ tax as the benefit arises from an employer-employee arrangement. In this article, words importing the masculine shall be deemed to include the feminine.


FREE BENEFITS

The Income Tax Act brings to tax any employer-provided free benefits enjoyed by employees. The tax is payable by the employees but is supposed to be deducted by the employer. For the record, whenever an employee enjoys an ‘advantage’ or ‘free benefit’ from a facility provided by an employer, that employee is potentially taxable. I must also state that free benefits are non-monetary items availed to employees which result in the employees enjoying an advantage that they would not otherwise enjoy had it not been availed by the employer. It is critical to reiterate that there is always no money which is directly paid to employees when a benefit arises. The employee however enjoys an advantage over any other employee who does not get to enjoy that facility, which is the reason why PAYE arises.

MEAL BENEFIT TAXABLE

Before I continue with taxation of meal benefits, I must state that a ‘meal allowance’ is not, by a BURS’ concession, taxable. Such ‘allowances’ are usually provided to employees when they are out of town or their workstation. What must be clear is that a ‘meal allowance’ is a monetary payment that is given to an employee for them to have a meal whilst a ‘meal benefit’ is not money but an arrangement where an employee gets to have a meal provided by an employer. Therefore, these two are different, albeit close to each other.

Below are some of the arrangements where meal benefits are taxable:

Free meals: An employee is taxable when the employer provides him with a free meal. The benefit taxable in the hands of the employee is equivalent to the market value of such a meal. In other words, the employee is taxed using the value of the meal that would otherwise be charged if such meal was to be provided to a third party. The benefit arising from the meal benefit is added to that employee’s salary and then tax is applied.


Subsidised meals: It may also happen that employers provide employees with meals but at subsidized prices. For example, if a meal costs P40 and employees are allowed to pay P15 per that meal, then the benefit will be P25 per meal for each employee who enjoys that meal.
Meal vouchers: Sometimes, employers provide their employees with meal vouchers which they redeem by getting meals and such meals are taxable. The fact that the employee enjoys the meal provided by the employer makes the benefit taxable. I must point out that it does not matter whether the meal vouchers are redeemed at the employer’s facilities or at third party’s facilities; PAYE still arises.

CONCLUSION

The biggest challenge with this benefit is the implementation part as it is not always easy to determine who had a meal and when. However, the truth of the matter is that if employers want to monitor the benefit enjoyed, they certainly can. It will be administratively burdensome but not something that cannot be done. The other issue to note is that non-deduction of the tax makes employers personally liable for the PAYE, before a possible 200% penalty that BURS may charge.


Where employers intend to avoid passing the tax to employees, they may consider grossing-up the benefit, essentially bearing the tax themselves. However, it must be noted that grossing-up may even make compliance with this tax more complex than just subjecting the benefit to tax. Lastly, I must reiterate, as stated above, that meal benefits enjoyed by employees when they are out of office are not taxable.


The reason for that exception is that the benefit is enjoyed in advancing the employer’s business. The taxable benefits stated above are ones that arise when employees are, in most cases, at their normal workstations. Well folks, I hope that was insightful. As Yours Truly says goodbye, remember to pay to Caesar what belongs to him. If you want to join our Tax Whatsapp group, send me a text on the cell number below.

Jonathan Hore is the Managing Tax Consultant of Aupracon Tax Specialists and feedback can be relayed to jhore@aupracontax.co.bw or 7181 5836. This article is of a general nature and is not meant to address particular matters of any person.

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