Vehicle FBT Should Be Paid By Employees
Vehicle Fringe Benefit Tax Should Be Paid By Employees
Media Statement: Vehicle fringe benefit tax should be paid by employees, say consultants
An independent fleet consultant firm is urging Inland Revenue to collect vehicle fringe benefit tax from employees instead of employers.
StratCon Fleet Partners says the present system in which employers are responsible for collecting and policing the tax has led to condoning of unofficial perks, development of circumvention processes, and owners of smaller vehicles subsidising those with larger cars.
The firm says the IRD could create a fairer and simpler FBT regime by transferring liability from employers to employees and relating the tax to vehicle engine size, age, and retail value at time of purchase.
StratCon proposes this approach in a submission prepared in response to Inland Revenue's discussion document on FBT options.
StratCon partner Graeme Perry said fringe benefit tax created numerous issues in the firm's consulting work for large fleet operators.
"The thrust of the IRD discussion document is that the government wishes to simplify the FBT process while retaining the revenue it generates," he said.
"While this is a step in the right direction, there are many conflicting interests, particularly in relation to motor vehicle taxation.
"Conflicts arise between employers who provide company cars either as a benefit or a tool of trade, and the employee ‹ as the employer seeks to reduce exposure and cost, and the employee seeks to improve their package.
"If FBT is about taxing an individual for benefits received in lieu of cash, then the value of that benefit should be simply added to salary and wages and taxed accordingly. This philosophy should apply irrespective of the type of vehicle employed to provide the benefit."
Mr Perry said under the existing regime there was a potential for confusion when ownership of a vehicle was unclear. A vehicle could be provided by an employer for use by an employee, but owned by a leasing company.
The principle of taxing the benefit should be the same as if an individual owned a vehicle outright, irrespective of how it was financed or provided.
Moving the taxation liability to the individual who directly received the benefit would eliminate any confusion and the possibility of tax avoidance.
StratCon's submission says the FBT regime should be changed to:
- Make individuals liable for payment of the tax instead of employers
- Move from proof of liability, to proof of exemption and close loopholes
- Standardise the calculation for the value of vehicles
- Place the emphasis on a engine size bands for FBT calculation, rather than average vehicle value
- Use FBT liability to encourage reduction in greenhouse gas emissions.
Mr Perry said the present FBT regime relies on operating cost figures from only one source, the Automobile Association, to create a single tax rate which takes little account of engine size or vehicle cost.
As a result employees seek larger cars to improve their packages using the reasoning that it costs no more to have a large car than a medium one‹in relation to FBT. However on closer review there are frequent examples which indicate that those employees who choose smaller cars are likely to be subsidising those who choose larger vehicles.
StratCon proposed linking FBT to bands of engine size, with the rate of tax reviewed every three to five years using a range of already available vehicle fleet operating cost information.
Further information: The full text of StratCon Fleet Partners' submission is available on request at www.stratcon-nz.com