Tax Experts Warn South Africans That a Company Car Perk Is Not Tax-Free

• Tax experts warned South African employees that SARS treats personal use of a company vehicle as additional taxable income
• The 2026 Budget fuel levy increase made company car perks more expensive for employees who cover their own fuel costs
• Accounting firm Nuvia Auditors said employees are often better off buying their own car and claiming a travel allowance

South African employees who enjoy a company car as a workplace perk may want to take a closer look at what that benefit is actually costing them. Tax experts are cautioning drivers that no such thing as a tax-free company car exists, and the hidden costs can quietly eat into your take-home pay.

The South African Revenue Service treats personal use of a company vehicle as a form of additional income. Each month, a taxable fringe benefit is added to an employee's payslip, pushing up their Pay-As-You-Earn tax liability. The result is that many employees end up paying more in tax than they would if they simply drove their own car.

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How the fringe benefit is calculated

SARS calculates the monthly fringe benefit as a flat percentage of the vehicle's determined value, which is based on the original purchase price including VAT but excluding finance charges. If the vehicle comes with a maintenance plan, the rate is 3.25% per month. Without one, it rises to 3.50%.

According to Business Tech, even employees who clock up significant business kilometres are not immediately protected. Employers are required to withhold tax on the full fringe benefit every month, and any adjustment only comes after the employee files their tax return and submits a detailed logbook. Accounting and tax firm Nuvia Auditors warned that this creates a cash flow disadvantage throughout the year.

"A company car is usually not worth it. The lack of VAT recovery and the monthly fringe benefit tax make it expensive. You're better off buying the car yourself and, if applicable, using a modest travel allowance to cover business trips."

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• Sonia Mbele’s production company, Sonia Mbele Films, is facing legal action from SARS over an unpaid tax bill.

Source: Briefly News