However, Absa Vehicle Management Solutions MD Keri Kirsten says the new, stricter company car taxes can actually turn out to be a blessing in disguise when it comes to long-term fleet control.
The changes to company car tax was first introduced in the 2010/2011 national budget and later drafted in the taxation laws amendment bill in May last year.
The bottom line is that generous company car packages will become a distant memory, because both employees and employers will have a harder time justifying the perk.
From the first of next month the tax increases from 2.5% of the vehicle’s value to 3.25%/month.
Under the previous tax regime, employers were able to withhold 100% of the monthly tax – popular with employees due to the positive cash flow implications.
Under the new regime, employers can withhold either 80% or 20% of the tax each month: the choice can be made at their discretion, although in both instances the balance will need to be consolidated at the end of their financial year.
In both instances, employees take home less each month.
“Employees can claim a considerable portion of that tax back – but only if they can justify the mileage at the end of the year,” says Kirsten.
“That usually means keeping logbooks, which is a very onerous task. I’m advising my clients with fleets to invest in the more sophisticated forms of GPS technology, which provides a reliable record of where the vehicle has been and how it was driven.”
The majority of passenger vehicle fleets were previously fitted with vehicle recovery tracking devices, with more advanced technology that tracks routes and the manner in which the vehicle is driven reserved for heavier commercial fleets.
“The technology has become much more readily available over the past few years and it’s now accessible to medium and small business owners with passenger vehicle fleets,” says Richard Parry, a director at tracking company iTrack Live.
“The price hasn’t necessarily decreased but the technology available at the same rate is much more sophisticated.”
Such GPS devices are available from most tracking companies and use imported or locally produced software. The increased competition and rapidly advancing technology in the sector over the past few years has acted as a price ceiling.
“These new devices can record diving mannerisms – such as harsh acceleration and braking – so employers can actually spend less over the long term in vehicle maintenance,” says Kirsten. “Over the long term they will protect companies when it comes to fleet control.”
Kirsten says an additional advantage of using technology is that under the amended act companies are liable for any shortfalls between the tax paid and mileage driven by employees.
Tracking devices eliminate the traditional hurried guesswork during the tax return filing season and reduce the risk carried by employers.
The alternative to a company car is a travel allowance, which already requires drivers to keep logs of distances travelled.
Employees who receive a monthly travel allowance have the opportunity to claim tax back from the SA Revenue Service based on distances driven.
* This article was first published in Finweek.