THE Government's plan to clamp down on the use of service companies could create unnecessary concern among taxpayers and be difficult to enforce, a senior tax partner at KPMG Peat Marwick said yesterday.
In two weeks, the Government will introduce legislation to curb the excessive use of such companies.
KPMG tax partner Rodney Sage said: 'This could catch arrangements that are genuine. I assume it will shift the onus of reporting on to the employer.
'It will also result in employers having to become tax experts to distinguish between true employment and a contract for services.' The companies are extensively used by partnerships and the self-employed to provide perks ranging from accommodation to pension contributions.
Typically, a service company will pay an employee's accommodation and living expenses. This could substantially boost the employee's benefits but would only increase his assessable income by 10 per cent.
The Government plans to attack companies making inflated payments of management fees by issuing a guideline that is expected to cap the mark-up charged by service companies at 12.5 per cent.
