Wednesday, 12 December 2018

Employers’ Tax Awareness: Settlement of PTPTN loan on behalf of employees

It was proposed in the Finance Bill 2019 that a tax deduction be given to employers who help settle PTPTN loans of their full-time employees, on the condition that employees are not required to reimburse the amount paid on their behalf. This proposal is aimed at improving the loan repayment performance and ensuring the sustainability of the PTPTN programme.

Section 13(1)(a) of the Income Tax Act 1967 provides that gross income of an employee in respect of gains or profits from an employment include any wages, salary, remuneration, leave pay, fee, commission, bonus, gratuity, perquisite or allowance (whether in money or otherwise) in respect of having or exercising the employment.

The characteristics of perquisites are as follows:

  • Perquisites can be received regularly or casually.
  • Perquisites can be received in cash or in kind.
  • Perquisites received by the employee can be in respect of an employment contract or be given by the employer or third party voluntarily.
  • A perquisite is subject to tax only if it arises in respect of having or exercising an employment.

The payment of an employee’s pecuniary liabilities by the employer is considered as a perquisite. As the PTPTN loan is a pecuniary liability of an employee, the PTPTN loan settlement amount would be deemed as a perquisite to the employee and would be subject to income tax.
Employers would need to report the PTPTN loan repayment amounts paid in their employees’ Form EA and subject such amounts to the Monthly Tax Deduction (MTD) Rules. As such, it is important that employees are made aware of the income tax implications, should they wish for the employer to settle the PTPTN loan on their behalf.
Wolters Kluwer’s Employers’ Tax Awareness in 2019 workshop focuses on employers’ tax statutory requirements and the importance of compliance. This workshop will also discuss recent tax developments and Public Rulings (where applicable) and the development of win-win situations for both employers and employees. This workshop will also highlight tax cost saving initiatives and managing tax risk on payroll reporting and disclosures on financial reporting on employee related expenses. 

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