Mr Sullivan explained that the Chamber has always stood for fiscal morality and does not, in principle, object to taxing fringe benefits when these are intended specifically to give an unfair tax advantage to the beneficiary. Nevertheless, it has reservations on the way in which some aspects of this tax are now being implemented and enforced. The implementation of a measure of this nature which has existed but not enforced for a large number of years requires a studied approach, a more gradual implementation and enforcement with adequate notice after the regulations are agreed upon through proper consultation. Unfortunately, there was no proper consultation on this subject at MCED level where a number of other measures were discussed in detail in anticipation of Budget 2001. Furthermore, in a number of areas the new rules impose tax burdens which go well beyond what is expected from a reasonable interpretation of the current Section 4 (1)(b) of the Income Tax Act. In simple terms, this means that Government is effectively imposing additional tax burdens on employees which may ultimately increase the costs of operation to employers.

Throughout the past three months, Chamber representatives held several meetings with relevant authorities including the Commissioner of Inland Revenue, the Minister of Finance (on more than one occasion) and the Prime Minister. The Chamber corresponded several times with the authorities to back its claims. Prior to each meeting the Chamber mobilised its own Taxation Committee which, since last November, produced three technical papers for negotiation with Government. In addition, the Chamber issued three media releases to clarify its position with respect to this issue. In most cases, the co-operation of other Constituted Bodies was sought to present a unified voice on the matter on behalf of all private sector representatives.

On the technical level, the primary objection to the private sector was the treatment of property in the first version of draft guidelines received from the Inland Revenue Department (IRD) in December. At this early stage, Government intended to tax the beneficiary of accommodation at the rate of 7.25 per cent on the higher of the market value or the original cost of the property. Following discussions with Government, the latter agreed to lower this rate to 5 per cent. Government also agreed to make special provisions for shareholders (or directors who are also shareholders) "where the use of company assets is presumed to arise as a direct result of their ‘ownership’ rights and not by virtue of employment or office. These provisions will allow either for the outright transfer of the asset in question from the company to the individual shareholder under certain conditions or for the transfer of the asset to a special ‘non-trading’ subsidiary company where the presumption of a fringe benefit does not arise."

With respect to other categories of fringe benefits, Chamber representations resulted in eliminating undue discrimination between beneficiaries of cars which were owned by their employers and others whose vehicles were leased from third parties. Government also agreed with Chamber arguments related to increasing the maximum permissible allowance for long service awards. Representations were also successful in lowering certain rates of private use value related to car benefits and in the treatment of vehicle depreciation. In the last round of discussions, Government also agreed to increase the percentage of voting rights required for a person to be deemed to be in a controlling position for the purposes of legal definitions.

In principle, the Chamber does not agree that the calculation of the private use value of a company car should vary with the value of the car. In no case should it, however, exceed 20% of the current value of the car. It was also suggested that cars are not taxed at higher rate than boats and that they are granted similar depreciation allowances (to those granted for boats) after the sixth year of ownership. In the case of car cash allowances, the Chamber suggested that the exempt portion should be increased to a more realistic amount. Due to the administrative burden involved, it was suggested that employees should not be obliged to keep records of receipts unless their claim is in excess of this limit.

The Chamber also criticised taxation on measures aimed at enhancing productivity through employee motivation as those related to Share Option Schemes. This measure is perceived to act against the principle of employee participation and hence as a disincentive to effort. Moreover, the Chamber is also actively seeking to eliminate discrimination between directors and employees in the case of health insurance. Other representations made to Government relate to accommodation, business travel, and insurance, particularly death in service and accident policies.

Whilst reiterating its stand in favour of measures aimed to curb evasion and acknowledging that Government has agreed to a number of its proposals, the Chamber shall, nevertheless, continue to discuss with Government in order to iron out all issues completely.

The Chamber considers that the implementation of taxation on certain fringe benefits will serve to disturb and extract further funds from the tax abiding public whilst failing to tap the operators in the underground economy.