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Monthly Tax Dedudction/PCB

An income tax deduction mechanism from an employee’s current monthly remuneration in accordance with the schedule of Monthly Tax Deductions (PCB) or other methods approved by the Director General according to the provision under rule 3, Income Tax (Deduction from Remuneration) Rules 1994 (MTD Rules).

Definition of Employer and Employee under Income Tax Act

Employer means:-

1. Relationship of master and servant subsists, the Master;
2. If relationship does not subsist, the person who pays or is responsible for paying any remuneration to the employee who has the employment, notwithstanding that the person and the employee may be the same person acting in different capacities.

Employee means:-

1. Relationship of master and servant subsists, the Servant;
2. If the relationship does not subsist, the holder of the appointment or office which constitutes the employment

Scope of Monthly Tax Deduction

• Salary
• Wages
• Overtime Payment
• Commission
• Tips
• Allowance
• Bonus or incentives
• Benefit-in-kind
• Director fees
• Perquisite
• Employee’s share option scheme
• Tax borne by the employer
• Gratuity
• Compensation for loss of employment
• Other remuneration related to employment
• Value of living accommodation
• ESOS

Perquisites

• Perquisites can be received regularly of casually
• Can be in cash or in kind. If it is in kind, such items must have money’s worth and are convertible into money, i.e. can be sold, assigned, transferred or convertible into cash
• Perquisites can be received in respect of an employment contract by employer (EA Form) or a third party voluntarily (Form B/BE)
• Perquisite is subject to tax only if it is arises in respect of having or exercising an employment

Tax Borne by Employer 

Income tax is a personal monetary liability of an employee. Although the employer agreed to pay the income tax of the employee, it does not relieve the employee from tax liability.

The full or partial amount of the employee income tax paid by the employer will falls within the definition of “Perquisite” and taxable.

ESOS Benefit

ESOS benefit is when an employer offers employee a scheme to acquire shares under favorable term, such as:-

• Free of charge
• At par value whereas the shares have premium value in the share market
• At a discounted price, whereas the shares have higher market value in the share market

Formula for ESOS

Choose the market value of shares on the date the scheme is exercisable or the market value of shares on the date the scheme is exercised (whichever lower) and deduct the price paid for the share by the employee to get the ESOS benefit.

Benefit-In-Kind

Benefit in kind (BIK) are benefits not convertible into money, even though they have monetary value. The benefit provided to the employee cannot be sold. Assigned or exchange for cash either because of the employment contract or due to the nature of the benefit itself.

Two method for calculation to find out annual value of benefits.

1. Formula method = Cost of the asset that is provided as benefit / Prescribed average life span of an asset
2. Prescribed value method is referring to Public Ruling 3/2013 Benefits in kind Appendix 2 determine the value of BIK.

Value of Living Accommodation

• Living accommodation provided for the employee by his employer is a benefit-in-kind which is not convertible into money. This benefit which arises in respect of having or exercising an employment is to be included as gross income of the employee from the employment.
• The amount to be taken into account is the amount in respect of the use or enjoyment by the employee of living accommodation in Malaysia (including living accommodation in premises occupied by his employer) provided for the employee rent free.

There are 3 types of value of living accommodation (VOLA)

1. Living accommodation provided for employee or service director
   • Service Director represents director who is employed in the service of the company in a managerial of technical capacity and does not hold more than 5% of the ordinary share capital of the company.
   • The computation of VOLA is :-
     • Defined value of VOLA or 30% of the gross income from employment under Para 13(1)(a) of the ITA (exclude ESOS) whichever lesser.
2. Living accommodation provided for directors of controlled companies
   • Director includes:-
     1. Person occupying the position of director;
     2. Person in accordance with whose directors or instructions the directors are accustomed to act
     3. Person who is
        (i) a manager of the company
        (ii) remunerated out of the funds of that business
        (iii) beneficial owner of 20% or more of the ordinary share capital of the company
   • The computation of VOLA will be the defined value of the living accommodation.
3. Hostel living accommodation for employee or service director
   • Where the living accommodation provided for employee or service director, is-
     1. In a hotel, hostel or similar premises; or
     2. Any premises in plantation or in a forest; or
     3. Any premises which although in rateable area are not subject to rates,
   • The amount to be taken into account as VOLA is:
     • An amount equal to 3% of the gross income under Para 13(1)(a) of the ITA (exclude ESOS)

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