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Anti-retrovirals continue to be a taxing burden for employees

03 September 2008 Roger Bramwell, Associate Director for Tax at Ernst & Young

As employers increase their efforts in providing anti-retroviral programmes for employees, the question arises as to why South Africa’s tax legislation has not made similar strides in aiding companies in their endeavors to combat the global HIV / AIDS pandemic.

The costs incurred by companies in both establishing and running anti-retroviral programmes are generally considered to be tax deductible. The tax issue with these programmes arises more from the fringe benefits tax treatment of the participants in the programmes, especially in respect of the anonymity of the participants.

The provision of medical services under an anti-retroviral programme may constitute a taxable benefit in the employee’s / contractor’s hands. However, no fringe benefit value is placed on certain employer-provided medical services if the service is provided as part of a scheme or programme that has been approved by the Registrar of Medical Schemes. The exemption extends to unapproved schemes only if the treatment is available to employees that are not members of an approved medical scheme or, if they are members, the employer recovers the costs from the medical scheme. Where the benefit relates to medical services provided to employees at their place of work, the benefit is also exempt from fringe benefits tax.

An even more contentious issue is the provision of medication under any anti-retroviral programme, as the exemption for services rendered to employees on-site does not extend to the provision of goods. Therefore, the employee is obliged to include in his gross income an amount equal to the cost incurred by his or her employer in supplying the medication to both the individual concerned and any dependants (if applicable).

The costs of anti-retroviral treatments are steep and the fringe benefit implications for low-income earning employees is potentially crippling.

An additional problem that companies face is that in order to comply with the South African Income Tax Act, the anonymity of its HIV / AIDS infected staff could be compromised as the company is obligated not only to withhold employees’ tax from this fringe benefit but also to disclose the fringe benefit on each individual’s IRP 5 certificate.


Whilst SARS may seek to argue that the secrecy provisions contained in the Act will protect an affected employee’s anonymity, the fact remains that in order to account for the fringe benefit the payroll support staff would have to be made aware of such a taxable benefit. The payroll support staff would have to update this onto the affected employee’s payslip and tax certificate, to ensure that the necessary tax is withheld. In short, in discharging its duties as an employer in terms of the provisions of the South African Income Tax Act, the employer could compromise the anonymity of affected employees.

An added complexity resulting from anti-retroviral programmes relates to the value added tax (VAT) implications of providing fringe benefits. In short, output tax is payable by the employer (but not recoverable from the employee)on the “value” of the fringe benefit provided to the employees in terms of the programme. The company will, however, be entitled to claim the input tax credit on the cost of acquiring any medication and on the costs of running any anti-retroviral programme.

As focus on combating the HIV / AIDS pandemic increases, tax legislation should follow suit. What is the point of a good programme, when the implications for the people it is intended to help is an addition to their tax burden?

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