 |
Nov 2007
On 21 September 2007 the General Department of Taxation (GDT) issued Official Letter 3913 providing details of the PIT calculation for individuals with exempt income. According to this Official Letter, for those individuals having both taxable income and exempt income, the PIT calculation needs to be first undertaken based on all income paid to the individual (i.e. taxable and exempt), and then calculating the PIT liability by prorating the tax based on the ratio of the taxable income over the total income.
The letter does not define what is "exempt income". Circular 81 dated 13 August 2004 has a list of "income not subject to tax", as well as other income which is "temporarily exempt" and our initial concerns were that there would be widespread implications for taxpayers. For example, we questioned whether paying employees exempt income items (e.g. for working in remote and dangerous conditions, and other exempt benefits such as home leave passage, school fees for expatriate's children, etc.) would impact the PIT calculation and result in higher tax liabilities.
We have had informal discussions with the GDT who has indicated that the "exempt income" referred to in Official Letter 3913 does not include "income not subject to tax" or "temporarily exempt" income as stated under Circular 81. It would appear that the intention of the Official Letter is to apply to employees working for projects (e.g. ODA projects) who receive both taxable income and exempt income. To some extent, this Official Letter repeats the previous Official Letter 94 dated 10 January 2005, which provides guidance on the PIT calculation for individuals having exempt income from ODA projects.
Official Letter 3913 was addressed to the tax authorities of all cities and provinces. Although it may not be the GDT's intention to change the PIT calculation, local tax authorities may misread the "exempt income" and seek to apply it broadly to individuals receiving any income that is not subject to tax.
Please contact us should you wish to discuss how Official Letter 3913 affects the tax calculation of your employees or to clarify the tax calculation method in your employees' cases.
This publication is intended for general guidance only and should not form the basis of specific decisions. Please contact us for further information and details of our services. |
|
