Benefits-in-Kind and Perquisites — Both Sides of the Transaction

Every guide to benefits-in-kind picks a side. Payroll blogs explain what the employee pays. Tax blogs explain what the company deducts. Nobody puts them on the same page — which is why boards approve a car policy believing the company gets a deduction equal to what the executive is taxed on. It does not. The two numbers are computed under different provisions and are almost never the same.

Here is a single RM280,000 saloon, seen from both ends.

• Employee: RM15,000 a year of benefit under paragraph 13(1)(b), plus RM2,400 for free petrol, taxed at the marginal rate, with monthly tax deducted.
• Employer: no deduction of RM17,400. Instead, qualifying plant expenditure restricted to RM50,000 under paragraph 2(2) of Schedule 3, because the car costs more than RM150,000 — written off through initial and annual allowances.

Same car, two regimes, no relationship between the figures.

What counts as a benefit-in-kind

Paragraph 13(1)(b) of the Income Tax Act 1967 brings into gross employment income any benefit or amenity provided by the employer that is not convertible into money. Convert-to-cash items are perquisites under paragraph 13(1)(a) and sit in Public Ruling No. 5/2019 instead. Living accommodation is a third category under paragraph 13(1)(c) with its own valuation rules in s.32.

The distinction matters in practice. Public Ruling 11/2019 Appendix 2 taxes an individual club membership under paragraph 13(1)(a) — entrance fee, monthly or annual subscription and term membership alike — while a corporate membership escapes tax on the entrance fee entirely and taxes only the subscription, under paragraph 13(1)(b) at prescribed value.

Valuing the benefit — two methods, different answers

Section 32(1) requires a just and reasonable valuation. Public Ruling 11/2019 gives two acceptable methods.

Formula method. Cost of the asset divided by its prescribed average life span, from Appendix 1 — a motorcar is eight years, curtains and carpets 15, kitchen equipment six, a piano 20. For a motorcar the result is then taken at 80%.

Prescribed value method. LHDN’s table.

Cost of motorcar when new	Annual prescribed benefit of motorcar	Annual prescribed benefit of petrol
Up to RM50,000	RM1,200	RM600
RM50,001 – RM75,000	RM2,400	RM900
RM75,001 – RM100,000	RM3,600	RM1,200
RM100,001 – RM150,000	RM5,000	RM1,500
RM150,001 – RM200,000	RM7,000	RM1,800
RM200,001 – RM250,000	RM9,000	RM2,100
RM250,001 – RM350,000	RM15,000	RM2,400
RM350,001 – RM500,000	RM21,250	RM2,700
RM500,001 and above	RM25,000	RM3,000

Other prescribed values: driver RM600 a month, gardener RM3,600 a year, household servant RM4,800 a year. Furnishings run RM840 semi-furnished, RM1,680 with air-conditioning, curtains or carpets, and RM3,360 fully furnished including kitchen equipment.

The choice is not neutral, and Example 11 of the ruling shows why. A six-year-old car costing RM280,000 new, driven 36,000 km of which 12,000 km is private, with RM8,400 of petrol and RM1,200 reimbursed by the employee:

	Formula method	Prescribed value
Car	RM6,667	RM7,500
Petrol	RM1,600	RM2,400

The formula method allows abatement for business use and for employee contributions. The prescribed value method allows neither — but it alone allows the half-value reduction for a car more than five years old, which paragraph 6.1.8 expressly withholds from the formula method. The petrol value is never halved.

Living accommodation is a different computation

Section 32(2) values the paragraph 13(1)(c) benefit at the lower of:

• the defined value of the accommodation — the arm’s length unfurnished rent where the employer leases, otherwise the rateable value or, failing that, the economic rent; and
• 30% of the employee’s paragraph 13(1)(a) gross income.

Where the accommodation is a hotel, hostel or similar premises, is on a plantation or in a forest, or is in a rateable area but not subject to public rates, the value is instead 3% of paragraph 13(1)(a) income.

Section 32(3)(a) removes the 30% ceiling entirely for a director of a controlled company who is not a service director. That person is taxed on the full defined value, whether or not still a director when the accommodation is used. Directors of owner-managed Sdn Bhds routinely miss this.

The employer side

Paragraph 12.1 of Public Ruling 11/2019 sets out the position, and it is not symmetrical with the employee charge.

Capital expenditure incurred to provide a benefit gives capital allowances under Schedule 3, and industrial building allowance where subparagraph 42A(2) applies. For a non-commercial motor vehicle that means the RM50,000 cap, or RM100,000 where the car is new and costs no more than RM150,000. For leased cars, s.39(1)(k) applies the same ceilings to rentals, in aggregate over the whole lease.

Specific benefits are deductible instead under gazetted Rules. The Income Tax (Deduction for Benefit and Gift From Employer to Employee) Rules 2009, P.U.(A) 153/2009, cover monthly bills for broadband, fixed line, mobile phone and pager whether issued in the employee’s or employer’s name, travelling allowances or petrol cards for home-to-work travel, and the devices themselves. A separate one-year rule, P.U.(A) 31/2021, allowed a deduction for smartphones, tablets and personal computers given to employees in year of assessment 2020.

The general position for everything else is unchanged: staff costs are deductible under s.33(1) if wholly and exclusively incurred in producing gross income, and non-deductible items in s.39 stay non-deductible however they are labelled.

What is exempt on the employee

Paragraph 8.2 of Public Ruling 11/2019 lists benefits either exempt or not regarded as taxable, including:

• dental benefit; child care centres provided by the employer; free food and drink; transport between pick-up points or home and work;
• insurance premiums obligatory for foreign workers in place of SOCSO, and group insurance covering workers against accident;
• leave passage — up to three within Malaysia in a calendar year, or one overseas passage capped at RM3,000, extended to the immediate family;
• benefits used solely for performing employment duties;
• discounted employer products up to RM1,000 of discount value, and discounted employer services in full — but only the employer’s own products, not a group company’s;
• one unit per asset category of fixed line, mobile phone, pager, PDA or broadband, together with the bills for that unit.

Common mistakes

Applying the five-year halving to a formula-method computation. Paragraph 6.1.8 rules it out.

Halving the petrol value with the car. It stays at full prescribed value.

Using the current market value of the car. The table keys off the cost when new, including accessories but excluding bank charges, insurance premium and road tax.

Assuming the employer deducts what the employee is taxed on. The employer gets capital allowances on a capped cost, not a deduction of the benefit value.

Treating a pool driver as a taxable benefit. Where a driver is not assigned to any individual and the pool exists solely for business purposes, no benefit arises. A dedicated driver is RM600 a month.

Forgetting monthly tax deduction on the benefit. Paragraph 11 requires the employer to deduct tax on the benefit in the month it is provided, under the Income Tax (Deduction from Remuneration) Rules 1994, P.U.(A) 507/1994. Where salary is insufficient to absorb it, LHDN approval must be obtained to pay by instalments.

Extending the product discount exemption to group companies. Example 19 of the ruling denies it — the goods must be the employer’s own.

What’s next

Run both valuation methods before you fix a car policy, because the cheaper one depends on business mileage and vehicle age, and the choice is the employer’s to make in the Form EA. Then check the employer side separately against Schedule 3 and P.U.(A) 153/2009, and stop assuming the two figures should reconcile.