Reference is made to the article titled ‘Taxation of employee benefits and Pay As You Earn’, where employees capitalize on the benefits offered to apply for and keep jobs with particular organizations. Whereas all benefits linked to the employee are taxable to the employee, the Income Tax Act has exceptions to the rule. These exceptions are deliberately not included in the definition of employment income. These exceptions are expenses directly incurred by the employer and cannot be taxed under Pay as you earn. They are under section 19(2) and this article specifically highlights (a) passage to and from Uganda and (b) the discharge of employees’ medical expenses:
Employment income does not include the cost incurred by an employer for transport to and from Uganda in regard to the employee’s appointment or termination of employment where the employee was recruited or engaged outside Uganda, is in Uganda solely for the purpose of serving the employer and is not a citizen of Uganda. This means that on recruitment of a non-resident to work in Uganda, his/ her employer will have to pay for transportation to Uganda at the beginning of employment and pay for transportation back home at the end of the employee’s employment.
The employer has to look at the value the prospective employee is bringing to his business and compare it to the transport costs. Sometimes’ the employee might want to bring his/ her whole family to Uganda but the employment Act mandates payment and the Income Tax Act only allows a tax deduction for the employee and not for the whole family. If the prospective employee is very valuable to the business, the employer will have no problem paying passage for the employee’s dependants. However, this expense is taxed to the employer.
There have been instances where an employee does not have a problem paying out of pocket expenses to transport his dependants, but that expense, is not tax deductible to the employee and the employee still has to pay PAYE before the transport expense. This provision of transport is different from transport allowance given to a person resident in Uganda, which is employment income under section 19(1) and is taxed under the PAYE scheme.
This section makes it difficult for some Ugandan employers to recruit outside Uganda as the cost of passage to and from Uganda might be expensive. In retrospect, similar repatriation sections in the employment and tax acts of other countries deter employers who cannot bear the burden of repatriation expenses from hiring Ugandan employees.
Medical is one of the most coveted benefits by employees in Uganda especially since there is currently no national medical insurance scheme. In reference to section 19 of the Income Tax Act, reimbursement or discharge of the employee’s medical expenses is also not included in employment income. It is not mandatory for an employer to pay for the employee’s medical expenses and that is why employees deliberately look for jobs where medical health benefits are given. Medical allowance is not to be confused with reimbursement or discharge of the expenses. Medical allowance is money given to the employee and should be rightly taxed under section 19(1)as part of employment income, while a reimbursement is the refund given to the employee for spending his own money on medical expenses and should not be taxed as under section 19(2). Discharge of an employee’s medical expenses occurs where the employer pays the employee’s medical expenses directly. This can be through an arrangement with a specific hospital or clinic that sends invoices to the employer after an employee has received treatment there. Some employees prefer this method as they do not have to fill in reimbursement vouchers, attach the relevant receipts, and even have some employers call the health service providers to confirm the cost of treatment given to the employees.
The down side to the reimbursement or discharge of the employee’s medical expenses is sometimes the employee has no privacy and the employer might get access to the employee’s health details through invoices or receipts. But the section is open and allows for the discharge of any of the employee’s medical expenses.
This is where some employers get creative and offer to pay medical expenses for only some medical ailments. Some establishments have no problem paying for an employee’s wife’s full maternity bills while others are fine with just following the statutorily given 4 days paternity leave. Some establishments pay full opticians’ and dental bills while others caution employees against eating too many sweets. The possibilities for health benefits offered to the employee are endless and it is up to the employers to determine what they can afford to provide. But it is mandatory for employers to have a safe working environment for their employees under the employment Act, and it is the obligation of any employer to provide for the employee on injury under the Worker’s compensation Act.
The repatriation of a non-resident employee is not taxed on the employee or employer. Medical allowances are taxed to the employee while provision of medical reimbursement or discharge of medical expenses is a cost borne by the employer and is not taxed if the employer can show that the expense was incurred in the production of income.
- Taxation of employee benefits and Pay As You Earn (renderuntoceaser.wordpress.com)