Paying Your CIBA Membership Fees: Income Tax and VAT implications

Introduction

As the end of 2024 approaches and CIBA membership fees become due in early 2025, tax practitioners are raising concerns about the income tax and VAT implications associated with paying these fees.

To determine the income tax and VAT implications of CIBA membership fees, it is crucial to address the considerations below.

Key Considerations

1. Who Pays the Membership Fees?

   Is it paid by the employer or the employee who is a member of CIBA?

2. Perspective of the Question

   Is the analysis from the company's perspective or the individual CIBA member's perspective?

3. Tax Implications

   We will analyse the income tax and VAT implications relevant to the scenerios.

Breakdown of Scenarios

1. If the Employer Pays the CIBA Membership Fee

   From the employer’s perspective:

   • If CIBA membership is a condition of employment, the company (employer) can deduct the membership fees (including VAT) from its taxable income.

   • However, as the company is not the member of CIBA, it cannot claim the input VAT when completing its VAT 201 form.

   • The full cost, including VAT, is a tax-deductible expense for the company when completing the ITR14.

   From the employee’s perspective

   • When the company covers the membership fee, it constitutes a nil-value fringe benefit under Paragraph 13(2)(b) of the Seventh Schedule, resulting in no income tax implications for the employee.

   • The employee cannot claim an input VAT deduction because the fee is paid by the employer.

2. If the Employee/Individual Pays the CIBA Membership Fee

• For Registered VAT Vendor (e.g., Sole Proprietor):

  • A member who is a registered vendor can claim the input VAT only if conducting an enterprise as defined by the VAT Act.

  • If the member is not conducting an enterprise, the input VAT cannot be claimed.

• For Non-Vendors or Employees:

  • Under Section 23(m) of the Income Tax Act (ITA), employees are prohibited from deducting membership fees paid to professional bodies.

  • Section 23(m) limits deductible expenses for employees to specific categories, such as contributions to retirement funds, legal expenses, wear-and-tear allowances, bad debts, and doubtful debts. As a result, this field is grayed out in the ITR12 tax return.

  • Consequently, a CIBA accountant employed by a company cannot deduct CIBA membership fees against taxable income when completing the ITR12.

• Summary of Deductibility

  • For Vendors: Input VAT can be claimed if the member is a vendor conducting an enterprise.

  • For Non-Vendors (Employees): Membership fees are not deductible against taxable income, even if employed as a CIBA accountant.

Optimal tax strategy

To optimize the tax treatment, the employment contract should explicitly state that membership to a professional body is mandatory and a condition of employment.

The Employer’s Perspective

• The employer pays the membership fees directly to the professional body.

• While the employer, as a vendor, cannot claim input VAT, the payment can be treated as a deductible expense against taxable income.

Employee’s Perspective

• When the employer pays the membership fee, it is treated as a nil-value fringe benefit, with no income tax consequences for the employee.

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