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Friday Sep 20, 2024
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Just before the dawn of the New Year, a new circular on the ‘Quantification of certain amounts of benefits in calculating the employment income’ (SEC/2023/E/02) was issued by the Commissioner General of Inland Revenue (CGIR) dated 6 April 2023 and made publicly accessible on 12 April 2023.
In a previous Daily FT article published on 17 March 2023 titled ‘The new Employment Tax Rules – A different perspective’, the circular on 7 February 2023 titled ‘Quantification of certain amounts for benefits in calculating employment income (SEC/2022/E/05 (Revised) was discussed where the three new inclusions to the circular was analysed.
Further to the latest circular being issued, the previous circular issued on 7 February 2023 will be applicable only for the three-month period of January to March 2023. The latest circular dated 6 April 2023 will be applicable from 1 April 2023. Hence, all employers should take into consideration the changes introduced in this latest circular in quantification of benefits for computing Employment Income from April 2023 onwards.
The latest circular issued in April 2023 covers most benefits included in the circular dated 7 February, however certain modifications are introduced. In this article, the author identifies the key changes addressed in the latest circular.
The latest circular covers the following benefits broadly.
While many of the above benefits were covered in the previous circular issued in February 2022, the new circular attempts to provide more clarity in relation to the quantifications provided by the CGIR under certain categories.
Value of benefits from any residence provided by the employer
Where a residence was provided by the employer, the quantification of the benefit was based on whether the residence is in a ‘rated area’, ‘unrated area’ or an ‘estate bungalow’.
Although, in the past the quantification varied upon based on the salary and included a cap limit, such criteria were removed from the previous circular dated 7 February 2023. Accordingly, the benefit valuation for all persons irrespective of the amount of salary received was computed in the same manner. Accordingly, the following are the quantifications provided by the CGIR for any place of residence provided by the employer.
There was no clarity as to how a furnished residence would be quantified in the circular issued on 7 February although in the past a specific quantification was provided. The latest circular seeks to confirm that the above quantification by the CGIR covers both unfurnished/furnished residences.
In case the value of the benefit quantified as above is higher than the cost incurred by the employer or the market value of the residence, the CGIR clarifies that the lower amount should be considered as the value of benefit from the residence.
The definition of ‘salary’ also has been modified in the latest circular to ensure the ‘gross’ salary is considered for the aforementioned calculation of the quantum of benefit derived by the employee.
Value of benefits included in the traveling, transport or related facility provided by employer
The quantification provided by the CGIR on the value of any benefits from the private use (partly) of any motor vehicle provided by the employer remains the same as the previous circular and is as follows.
If an employee is provided more than one vehicle, the above quantification can only be applied for one such vehicle. In relation to any additional vehicles provided by the employer to an employee, any aggregate cost incurred by the employer for vehicle and fuel of all additional vehicles will be considered as the value of benefit for the calculation of employment income. The CGIR in the latest circular has provided further clarification that in case the cost of the additional vehicles cannot be ascertained, then the market value of the monthly operating lease for a similar type of vehicle (including same engine capacity) should be considered as the monthly value of benefit.
Loans on concessionary interest rates
In the previous circular, the benefit derived by the employee on concessionary loans provided was identified as zero, accordingly an employee was not required to pay any employment taxes on such loans on concessionary interest rates.
The CGIR has provided further clarity in relation to staff loans since many corporates do not extend a staff loan directly from the company but may facilitate such loan from a bank/financial institution. The latest circular states that where the employer or where the employer facilitates the loan via a bank or financial institution and the employer agrees to settle or bear the cost of the interest in part or in full and such benefit is provided to all employees (without discrimination) then the value of the benefit for the employee will be considered as zero and hence not subject to employment tax.
Payment of telephone bills of the employee
The CGIR in the latest circular has provided further clarification that where an employer pays the telephone or communication bills of the employee (used for office and private purpose), 50% of the Bill payment made by the employer will be considered as the benefit received or derived by the employee for the purposes of computing the profits from employment.
Other non-cash benefits
The CGIR reiterates that any non-cash benefits that are not specifically covered under the circular, the cost incurred by the employer for provision of such benefit to the employee should be considered as the value of benefits in computing ‘profits from employment’. In case cost is not ascertainable then, the market value of a similar kind of benefit should be considered.
Payments in cash for vehicle, fuel and communication facilities
One may recall that the circular issued on 7 February included three new introductions to provide relief to those who are with an entitlement for a vehicle, fuel or communication facilities due to a circular, directive or regulations issued on that behalf by the Government. These quantifications were not in fact only for non-cash benefits but also covered payments in cash for vehicle, fuel and communication facilities under any Circular, Directive or Regulation issued in that behalf by the Government where the value of the benefit was limited to 25% of the cost incurred by the employer, for the purposes of calculating tax on employment.
The three inclusions to the February 2023 circular remain the same in the latest circular and no attempt has been made to extend the same facility to the private sector employees and all other public sector employee who are being deprived of this concession (i.e. the allowance being taxed subject to a ceiling of 25% of the allowance). As the law stands now a cash allowance for employees who are not provided vehicle, fuel and communication facilities under any Circular, Directive or Regulation issued in that behalf by the Government will be subject to employment tax on 100% of such payments since the full amount is considered ‘profits from employment’.
(The writer is Principal – Tax and Regulatory, KPMG.)
