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In view of the economy slowdown that resulted from supreme crisis in year 2008, Malaysian Government has been making efforts to mitigate the impact of economic downturn to its Rakyat (citizen). One of the efforts is to reduce the impact of the higher living costs as a result of inflation, by reducing the tax burden of its Rakyat, via 2009 Budget. Among them are: tax relief on interest paid on housing loan, tax exemption for interest income received by individual from deposits in approved financial institution, and tax exemption on some benefits / allowances paid by the company to the employees.

Among the benefits / allowances given to the employees which are tax-exempted for Year of Assessment (YA) 2008 are (more direct related to the above subject ones are spelt out):

• Petrol card, petrol allowance or travel allowance between home and workplace, up to RM2,400 per year (valid until YA 2010);   
• Petrol card, petrol allowance or travel allowance and toll card for official duties, up to RM6,000 per year;
• Allowance or fees for parking;
• Meal Allowances; Allowances or subsidies for childcare of up to RM2,400 per year;
• Telephone and mobile phone, telephone bills, pager, personal data assistant (PDA) and internet subscription;
• Others

The benefits provided can be in the form of cash allowances or benefits-in-kind (benefits with monetary value but not convertible into cash). If cash allowances are given, no proof is required for tax exemption. The employer is required to declared such tax-exempted allowances in the EA form of the employees. However, if tax-exempted benefits-in-kinds are given, supporting documents may be needed to substantiate such claim. Example of benefit-in-kind is handphone set provided by the company with company registered line, and the supporting documents will be handphone bills.

The above effort by the Government will only benefit individuals who are eligible for the allowances or benefits-in-kinds as mentioned above. The issue now is, for individuals who are getting basic salary only, will the employers incorporate the above into their remuneration package in order to reduce their tax. *For example, an employee who is getting basic salary of RM5,800 per month, and in the 13% tax bracket. The employer may restructure his remuneration package by giving him basic salary of RM5,300 per month and, say, travel allowance of RM500 per month. RM6,000 would then be exempted from tax, and this amounts to a RM780 saving. Employer will at the same time, eligible for full tax deduction by providing these benefits. However, both the employer and employee might want to reach to an agreement of re-look into the remuneration package again after a period of time, as some of the above-mentioned tax-exempted benefits are valid for a certain period of time only.

*The above example is based on simple illustration. The employer is advised to discuss with the company’s tax consultant before implementing any restructuring of remuneration for employees for the purpose of tax planning, in order to achieve a win-win situation.