it It is again another season where festive gifts will be given to those celebrating Diwali. Similarly, since Malaysia is a multicultural society, it is customary for suppliers and customers to give gifts to people celebrating various events during the respective festive seasons.
Typically businesses will be giving gifts to customers, and in some cases to suppliers and their employees. There will also be instances where business owners may take goods as gifts for their own use. There will be tax implications for both the giver of the gift and the recipient of the gift.
Gifts given to customers and suppliers during the festive season to maintain goodwill and relationship with them will be treated as entertainment expenditure eligible for 50% deduction. However, if they are promotional gifts that include a company’s specific logo or advertising, and the gift is provided in Malaysia, the deduction eligibility can be increased to 100%.
Gifts such as hampers given to employees during the festive season are also eligible for 100% deduction on the basis that they may fall under employee entertainment provisions, or will be deductible as it is an expenditure incurred to maintain the goodwill of employees. In contrast, from the staff perspective, gifts that are given for personal appreciation or for specific personal reasons are not taxable because they are related to obtaining or using employment.
Examples would be wedding gifts and celebration gifts, which should be appropriate and not excessive. This should not be misused where expensive items are provided and the employer attempts to claim deductions. This is because if gifts are given only for personal appreciation, they should not be excessive or unusual. Family-controlled companies providing gifts to shareholders and directors should be careful to avoid any such abuses. ang pau Even if a fair amount is given to all employees as a gesture of personal appreciation, it will not attract tax in the hands of the recipient.
Where cash gifts are received from the employer or from third parties, suppliers or service providers associated with the company during this festive season, such gifts will be taxed in the hands of employees because of the potential nexus between the gift and employment with the company.
If the gifts are taxable in the hands of the employee, it is the responsibility of the employer to declare this amount in his annual employer return and account for the monthly tax deduction.
For businesses that are receiving gifts from their suppliers, they will not be taxed as they are not linked to the business transaction. Gifts are purely a means of maintaining good relations between friends without any expectation of mutual benefit, like a gift. However, the person making the gift will still be entitled to a 50% deduction.
As a business owner, if you withdraw company stocks for your personal or family use, it will be treated as a withdrawal of stock, and your business will have to bring the market value of the withdrawn stock to tax.
You should not forget the implication of e-invoice: If the gift is brought to tax as employment income of the employees, no e-invoice is required to be issued. Otherwise, self-bill e-challan will have to be issued. For businesses purchasing gifts for their customers, you should usually receive an e-invoice from the vendor unless the supplier is exempt from issuing e-invoices. The gift recipient is not required to issue any type of e-challan for the gift received.
This article is contributed by SM Thanneeramalai, Managing Director of Thannees Tax Consulting Services Sdn Bhd (www.thannees.com).
