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The Sun Daily: Rejig your pay package, save on taxes

Repost of publication on The Sun Daily on 17 June 2019.
It may be time for employees to engage their employers to repackage their remuneration to save taxes without imposing any extra monetary burden on the employer. This assistance will also be a great motivation for employees to reciprocate their loyalty to the employer who will be seen to be going the extra mile to meet the individual employees' needs.

Currently in the marketplace, employers generally do not tailor remuneration packages to the individual employees' needs because it involves extra time and effort.

When we talk of remuneration packages it usually refers to basic salary, medical benefits, basic insurance cover such medical insurance, personal accident, bonus, some allowances such as parking allowance, travel allowance, employer's contribution to EPF, SOCSO, EIS, etc.

How to save on tax?
The savings from taxes will generally come from maximising the utilisation of benefits-in-kind, perquisites and exemptions.

Benefits-in-kind are not convertible into cash, and these include equipment provided to employees such as motorcars, furniture and fittings, household equipment, mobile phones, etc.

Perquisites are convertible into cash and they include petrol cards, travelling allowances, interest on loan subsidies, income tax borne by the employer, parking allowances, long-service awards, etc.

Exemptions are specifically provided for in the Income Tax Act 1967 and they include items such as gratuity payments upon retirement, employer's additional contribution to EPF, etc.

Review your remuneration package with the employer
Different employees require different packages and it will depend on which age group they belong to, whether they are married or not, lifestyle, and personal choices.

For example, a person who is due for compulsory retirement in the next five years when he reaches the age of 60 may wish to defer some of his salary increments over the next five years and receive it as retirement gratuity which should be exempt from tax on the grounds that this represents a reward for the employee's past services to the business.

Specific items that can be tailored which may save taxes
Individuals will be incurring many different personal expenditures such as purchase of mobile phones, digital gadgets, petrol for motorcars, travelling expenses, parking expenses, interest on housing/motorcar/education loans, childcare expenses, purchasing furniture and fittings for their household, holidays (locally and internationally), purchasing employers' goods at discount, maternity expenses and traditional medicine, telephone and broadband subscriptions, entrance fee to recreational clubs (corporate memberships only).

The employer will have to incur the expenditure in order for the employee to take advantage of the tax benefit. The tax benefit for the employee will range from an entire exemption on the cost incurred by the employer, to an amount that will be lower than the cost incurred.

To enjoy the benefit, the employee may need to repackage his total remuneration such that he reduces his basic salary and receives the balance in various forms either in cash or kind without increasing the monetary cost to the employer.

Is repackaging your salary an avoidance of tax?
No. Every individual is entitled to organise his tax affairs in such a way that he pays the correct amount of taxes and no more.

If an employee negotiates his salary package within the confines of the law and chooses to receive the payments that are specifically allowed by the law such as receiving a reduced salary but at the same time, agreeing with the employer to contribute a higher employer's contribution (say up to 19%, the maximum amount the employer can claim a tax deduction) to his EPF, this will not be regarded as tax avoidance.

This is referred to as tax mitigation which allows the taxpayer to choose the best alternative permitted under the tax laws.

My advice
Time for employers and employees to think about helping one another.