Interaction between Fringe Benefits Values and VAT

The main objective of this study was to seek certainty regarding the interaction between the value-added tax (VAT) implications of fringe benefits and their impact on the taxable values of such taxable fringe benefits for income tax purposes. Hence, the study investigated whether VAT should be included or excluded when the taxable value of fringe benefits for income tax purposes are determined. In 2019, a minor amendment was made to the opening words of section 23C(1) of the Income Tax Act (No. 58 of 1962), a section that links the VAT consequences of a fringe benefit to that of determining its taxable value for income tax purposes. However, the actual words applied in the Amendment Act do not align with the National Treasury’s intention as described in its Explanatory Memorandum. This misalignment is the problem that the study aimed to address, highlighting the two possible approaches of interpretation: literal versus purposive. The methodology adopted was nested in the paradigm of interpretivism, whereby a qualitative research approach was employed by means of doctrinal research, supplemented by a basic comparative analysis of two different approaches of interpretation. The outcome of the study highlight an anomaly in the income tax consequences triggered by the application of section 23C(1), causing an unintended change in policy that has a negative impact on the taxable value of taxable fringe benefits. The paper makes recommendations to be considered by the legislator to rectify the identified anomaly, which could aid in providing certainty regarding the interaction between fringe benefit values and VAT.