Government's decision to reduce the significant jump in the tax on company cars announced in February has been welcomed by the SA Institute of Professional Accountants.

"However, people should still brace themselves for considerably reduced take-home pay from March 2011," the institute's tax technical sub-committee chairman Ettiene Retief said in a statement on Monday.

The institute and other organisations had submitted commentary on the proposed legislation to review the plan to hike the personal tax implication for those using company cars by as much as 82.4%. The government then adjusted the tax to just under 60%.

At present, the amount of tax people pay on their company car benefit is calculated at 2.5% of the determined value of the vehicle (including purchase price and finance costs, but excluding VAT).

"But from the beginning of the new tax year, this will jump to 3.5% of a larger determined value, which will in future be calculated to include VAT," Retief said.

"That means people will be paying on average 59.6% more in tax for their company cars than they're currently paying, making  this benefit an expensive option with a great impact on employee tax."

However, some relief had been introduced to reduce the tax liability for actual business travelling.

According to Retief, of particular concern to some would be the fact that they would not easily be able to change their cars for cheaper models that would reduce their tax burden.    

"Many individuals will simply have to wait until their companies  permit them to swap cars, perhaps only when their fleet finance deals run out, leaving people to shoulder the tax burden for several years in many cases."

Retief said that in the current economic climate, this would no doubt have a huge impact on many people.

"That's why Saipa is appealing to our members to warn their clients of the implication."

For example, for a person who earns R300,000 per year (assuming a 35% tax rate), who drives a R150,000 (excluding VAT) company car, from March 1 2011 the tax burden will jump from about R15,750 a year to around R25,137.

Most of this amount would be collected through employee tax and therefore deducted from take-home pay.    

"Add to this the carbon emission tax that's due to kick in September 1 and you're looking at a hefty hike in what company cars  will be costing people in the near future."

Nevertheless, Saipa was satisfied that its call to reduce the planned tax had been heard. "After all, how do you rationalise such an astronomical increase  in tax in just one year? We had hoped this would be phased in over two or more years, but at least it's not the enormous jump we'd feared," Retief said.