Up to 20% of employees receiving car allowances are not entitled to them, according to fleet management consultant John Bell.
Finance minister Trevor Manuel and SA Revenue Service (Sars) commissioner Pravin Gordhan both recently announced their intention to squeeze more tax from travel allowances. By one estimate, overclaiming on business travel costs the Exchequer up to R3bn/year. Bell thinks the total figure related to the allowance system could be much more.
Travel allowances are intended for employees who need a vehicle to travel on behalf of their company. In theory, the vehicle is a revenue-generating tool. But over the years, allowances have been showered as a "perk" on all grades of staff and have become part of the standard employment package.
"Companies have been giving gifts that weren't theirs to give," says Bell. "One in five people getting an allowance shouldn't be. It could be more. Even if it isn't, that's 120 000 people claiming allowances they aren't entitled to."
Annual travel allowance claims total about R36bn.
Gordhan has no doubt the process is being abused. "The whole system of travel allowances will have to be re-crafted," he said in a recent interview. It's no idle threat. Sars has been looking at the allowance system for several years, including audits of company travel schemes.
But abused or not, allowances are part of a salary package. They can't just be taken away. So employers must find different ways of paying the money to employees or providing transport.
PricewaterhouseCoopers tax & legal services director Gerald Seegers says: "Whatever form the Sars changes take, the onus will be on the employer to investigate alternatives. The financial impact will be greater for employees. There is likely to be a shift of compliance from the employer to the employee."
Employers opting to continue to pay the allowance in another form must package it so it doesn't add to the overall cost to company. Simply adding it to basic salary would increase employer commitments to pension funding and bonuses.
Those that continue to provide transport may have to look at alternatives to allowances. The company car scheme may regain some attraction, but instead of buying cars and handing them over to employees, companies may prefer to lease them.
The obstacle to that idea is that South Africans like to own their vehicles. With allowances, they do. Though leases and rentals permit ownership transfer at the end of an agreement, many South Africans have resisted leasing options that have found favour in other markets.
Still, says Seegers, "my view is that use rather than ownership may be the answer". Imperial Group director Manny de Canha agrees: "A lot of companies will lease cars and hand them over to employees. The cost to company is less."
Gordhan's main issue with allowances is overcharging for them on deemed business mileage. The present system, which relies on a largely unsubstantiated claim of business travel, is open to abuse. In many other countries, claimants must record their travel in a logbook and submit it in support of their claim. Seegers thinks that's the way to go for SA.
"If you use the logbook, you don't have to change the tax parameters. It's by far the easiest solution and has to happen here. Abuse of the system will continue as long as there is deemed mileage."
A consequence of bringing the SA allowance and vehicle acquisition system into line with other countries is that car-buying patterns may follow. The number of luxury cars sold in SA, as a percentage of the overall new-car market, is twice as high as in major markets. Status is big in SA. In a country where fleets and car allowances account for 80% of sales, it's companies that finance that status.
Though executives will no doubt continue to enjoy the luxury to which they are accustomed, other employees may have to be a little more cost-conscious.
Bell, meanwhile, has a simple message for fleet managers and financial directors unsure what effect the eventual Sars policy changes will cause. "Assume the worst. Get the right policy in place. Get the wrong people off your scheme. And when the new system arrives, follow the rules."
