Come 1 April 2015, Malaysia will see the implementation of a Goods and Services Tax (GST). This is an important area of consideration for any employer that has an annual taxable turnover exceeding RM500,000.
Quite apart from considerations of how GST will impact the business transactions, GST will have an impact on employee benefits as well. This necessarily results in employers having to reconsider how best to package the employee benefits that they offer to their workforce.
Employee benefits are defined largely to include any right, privilege, service or facility provided free of charge to employees. Employee benefits can be given or provided by the employer to an employee or by a third party on behalf of the employer to the employee.
The important point to note is that employers need to be aware of whether the supply of certain employee benefits will be subject to output tax and whether they can claim any input tax arising from the purchase of goods or services provided as employee benefits.
As an example, employee benefits that are given free to employees as set out in an employment contract do not require output tax to be accounted for and input tax for such employee benefits will be claimable. There is a “gift rule” that exempts the application of GST output tax on any goods worth RM500 given to the same person in the same year. However, if a particular employee benefit is not set out the employment contract and exceeds the threshold of RM500 pursuant to the gift rule, output tax will be applicable to such benefits.
In short, where employee benefits are set out in an employment contract, such benefits will not attract output tax but the employer will still be able to claim input tax. However, for employee benefits supplied that are not set out in the employment contract and which exceed the gift rule, the supply of benefits will attract output tax though input tax can still be claimed.
As a general rule, it could be summarised such that an employer would need to account for output tax on goods provided free to employees with the exception of the following:
- Goods provided free to employees as stated in the employment contract;
- Exempt supply;
- Zero rated supply;
- Supply of goods under the gift rule; and
- Supplies where recovery of input tax is blocked.
There could thus be a variety of items that fall within the scope of employee benefits. These would include typical items provided to employees such as mobile devices, laptops, accommodation and transport, just to name a few. However, it is notable that salaries or other cash payments will not be subject to GST as money is not regarded as goods or services. Shares given free to employees are considered exempt supply and do not require an employer to account for output tax.
This is only a brief glimpse on one of the ways that the implementation of GST may impact employee benefits. Whilst there are many items that employers have as a matter of course provided as employee benefits, the implementation of GST on 1 April 2015 makes it timely for employers to revisit and review how employee benefits ought to be packaged in order to arrive at the most tax efficient manner of providing such benefits.
In the larger picture, given the fast approaching implementation of GST in Malaysia, it would also be critical for employers to ensure proper training for their employees to ensure compliance with the GST regime. Otherwise, visits from the Royal Malaysian Customs and hefty monetary consequences could follow