Tax on Non-Reimbursable Allowances Effective August 1

Minister of Finance and the Public Service, Hon. Audley Shaw, has signed a Ministerial Order paving the way for the taxing of non-reimbursable allowances paid to employees, effective Saturday, August 1, 2009.The measure provides for the removal of personal income tax on perquisites such as benefits from accommodation, gratuities, uniform and laundry allowances.
In a release today (Thursday, July 23), the Ministry reported that the Provisional Collection of Tax (Income Tax No.3) Order, 2009 was signed by the Minister on July 21, and was scheduled to be gazetted as of Wednesday(July 22).
Ministry Paper No. 25/09, entitled Revenue Measures 2009/2010 and dated April 23, 2009, which was tabled by Minister Shaw during his 2009/10 Budget Presentation, proposed that all allowances be brought into the income tax net at the full rate of 25%.
Currently, the accommodation (rent allowance) benefit is taxed at 15% with the landlord being required to account for the additional 10%. However, the Ministry Paper said that this has posed significant administrative issues, as Tax Administration has had challenges in verifying the amounts.
As it relates to the tax free gratuity for the hotel sector, the Ministry Paper said, “it is to be noted that currently these workers enjoy a maximum threshold of $470,272. The proposal is that these persons continue to enjoy the maximum rate until the general threshold is similar, after which the general threshold will apply to all persons.”
The revenue yield for this tax measure, as stated at the time in the Ministry Paper, was $1.2 billion. However, it should have become effective from July 1, 2009 in order to meet that target.
In keeping with the Revenue Measures Ministry Paper the Ministerial Order provides for:
1. Section 5(1)(c) of the Income Tax is expanded to make it clear that income tax is chargeable on all emoluments, cash, benefit or kind arising or accruing to any person by reason of his office or employment, including the full cost of providing the benefit or kind (such as rent, uniforms or laundry).
2. Provision is made for the annual value of accommodation to be determined by the Commissioner. A rate of 30% of the average of the annual value will be applicable only in two instances –
a)Where the employee is required to live on the premises or elsewhere and it can be established that it is necessary for the employee to have the accommodation in order to exercise his employment, and
b) Employees who occupy premises owned or operated exclusively for religious, charitable, scientific or educational purposes and no part of the net income enures of any private stockholder or individual.
3. There has been an adjustment to the exemption under the gratuity schemes for the hotel sector as provided for at Section 12 (a) of the Act and to bring them in line with the income tax threshold.
4. Section 40A has been amended to make it clear that the full value of the accommodation is subject to income tax and no deduction is allowable. There is, however, a proviso that where the Commissioner is satisfied that the transaction was not done for the evasion of tax, deduction under Section 13 may be approved.