Page 80 - DCOM508_CORPORATE_TAX_PLANNING

Unit 3: Corporate Tax Planning

“The HRA is fully taxable whereas for RFA there is a formula to convert this non-cash Notes
item into cash equivalent. That formula produces a lesser value for the accommodation
provided and this in turn will reduce taxable income. Similarly, instead of travelling
allowance, one can opt for a car, fuel and driver from the employer. For the car, fuel and
driver, there is also a formula that will produce lesser taxable value and the taxable income
will be considerably reduced, especially for expatriates who are hesitant to buy cars as
the disposal value of the used cars is generally very low. Most times, there is no market

for used car in Malaysia. Another allowance that plays a significant role in tax planning is
entertainment allowance. Entertainment allowance will be fully added in Section 13.1(a)

and the expenditure incurred for official purposes will be given as a deduction. But the
problem is the RFA value is calculated with the gross entertainment allowance and not
with the net allowance.”
Tax Planning
“Then what is this tax planning about?” Ravi asked.
“One of the approaches is to invest our savings in Income Tax Act - approved schemes so
as to get approved reliefs and thus our chargeable income will be less and then subjected
to lesser tax payable,” Khir replied.
“It is interesting. Could you please give more examples for this?” Ravi requested.
Khir then gave to Ravi the following list of individual tax reliefs.
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Ravi had a look at the list and immediately responded, “I cannot understand any of the
examples given. Rather than telling me and giving me this list, can you please come up
with some hypothetical income levels with HRA or RFA, CAR or TA etc to illustrate how
much tax reduction one can get by applying different levels of salaries and remuneration
schemes. The illustrations you have prepared will not only be useful for expatriates but
also for all employees.
We can advise our employees on these useful matters. They will be happy. We also can
convince and educate them that tax evasion is unethical but tax avoidance and tax planning

are acceptable. Please illustrate with figures for all the above tax jargons.”
“Sure, but give me at least one week to come up with all details because I have to update
myself with the latest tax enactments,” Khir replied.

The following week Ravi received a call from Khir. He confirmed that he had prepared ten

different salary schemes with the same gross total income of ` 200,000, but with different
allowances, perquisites (PER) and benefi ts-in-kind (BIK).
He explained to Ravi that employees could get paid by employers in different forms and
how these payments were taxed under the Income Tax Act. He provided the following
table which provided all relevant details in matrix form.
Contd...

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