Understanding Benefits in Kind

When calculating Potongan Cukai Bulanan (PCB) for employees in Malaysia, employers must consider not only salaries and bonuses but also Benefits in Kind (BIK) — non-cash benefits provided to employees as part of their employment package. These are subject to income tax unless exempted, and must be included in monthly PCB computations.

This guide will help you understand what qualifies as a BIK, how to value it, and what exemptions apply, according to Lembaga Hasil Dalam Negeri (LHDN) rules.

What are Benefits in Kind (BIK)?

Benefits in Kind are non-monetary benefits given by an employer that have a monetary value. These benefits are considered taxable income under Section 13(1)(b) of the Income Tax Act 1967.

Common Examples of BIK:

When Must BIK Be Declared for PCB?

BIKs must be declared and included in an employee’s gross monthly income if:

• They are not exempted under tax law.
• They exceed exemption thresholds (where applicable).
• They are used for personal or family benefit.

Failure to include taxable BIKs in PCB calculation can result in underpayment of tax and penalties during audits.

How Are Benefits in Kind Valued?

LHDN allows two methods to calculate the value of BIK:

1. Formula Method (Prescribed Annual Value)

This is the most commonly used method.

Annual Value = Asset Cost × Prescribed Rate (based on asset life)

Example:
A company car costing RM80,000 with a lifespan of 8 years:
RM80,000 × 20% = RM16,000/year
Monthly Value = RM1,333.33

Rates for various assets are detailed in LHDN’s Public Ruling 3/2013.

2. Market Value Method

Used when the Formula Method is not suitable (e.g., transfer of used company assets). The fair market value is declared as income.

BIKs That Are Exempted from Tax

Certain BIKs are fully or partially exempt from income tax and excluded from PCB:

For full details, refer to Public Ruling 3/2013.

Example: BIK in PCB Calculation

Monthly Salary: RM5,000
Company Car: valued RM1,333.33 per month
Mobile Phone: fully exempt
Total Income for PCB = RM5,000.00 + RM1,333.33 = RM6,333.33

The mobile phone is not included, as it is exempted. The PCB should be calculated based on RM6,333.33.

Failing to include Benefits in Kind in PCB calculations could lead to underreported income and penalties during LHDN audits. As an employer, it is your responsibility to:

• Determine the taxable value of BIKs
• Declare them accurately in payroll
• Apply exemptions where applicable

Control over his/her employer

The phrase “control over his/her employer” refers to a situation where the employee has significant influence or authority over the company, typically through ownership, shareholding, or a senior executive position (like being a director or CEO).

In the context of tax exemptions — such as for Benefits-in-Kind (BIK) or reimbursements like mileage claims — this means:

What “Control” Means Practically:

According to LHDN (Malaysia’s Inland Revenue Board), “control” usually applies when:

• The employee is a major shareholder (e.g. owns more than 20% of the company’s shares).
• The employee is a director with decision-making power over remuneration.
• The employee can influence the terms and conditions of their own employment, such as:
  • Deciding their own salary or benefits.
  • Approving their own expense claims.

Why This Matters:

LHDN imposes stricter rules on such individuals to prevent abuse of exemptions. For example:

• A regular employee may claim mileage allowance tax-free within limits.
• But a director who controls the company might not get this exemption, even if the same limits are followed.

Example:

If you’re a director who owns 51% of your company:

• You can’t exempt mileage claims or Benefits-in-Kind like a company car from tax just because you call it a “reimbursement”.
• LHDN may treat these as taxable benefits, since you have control over what is approved or paid out.