It’s the time of the month when IRAS starts sending out letters to working individuals to ask for money. What exactly is the best method of payment? Will you stand to gain by paying through credit cards and earn more miles and points?
A quick look at IRAS website will reveal the following modes of payment:
To pay online, visit your bank’s website (select Bill Payment) CIMB RHB
Phone-Banking service for DBS/POSB, OCBC and UOB account holders who have subscribed to this service.
Pay your tax at DBS/POSB or OCBC Automated Teller Machines.
Pay your tax at any AXS Self-service station.
AXS Online Platform
Pay your tax via AXS e-Station (Internet) or AXS m-Station (Mobile).
Pay your tax at any Singapore Post Self-service Automated Machine.
vBOX is an online website service offered by Singapore Post.
At any Singapore Post Branch to make an over-the-counter payment.
Cheque/ Cashier’s Order
Pay with cheque or cashier’s order from any bank in Singapore. Please attach the Payment Slip with your cheque payment and write the tax reference number on the back of your cheque so that payment can be updated to the tax account.
Some banks/ credit card companies offer options to pay tax via credit cards. Please approach your bank or credit card company for the option.
Payment by telegraphic transfer is only for payments from overseas and the payment modes listed above are not applicable.
Monthly deductions through your bank account
A look at the 3 best options in my opinion:
With 12 interest free instalments, one can keep the extra money in one’s account for additional interest instead of paying off the money at one go. Since OCBC 360 account offers up to 3.05% p.a., this can mean a substantial amount of interest earned over the next one year! Some people will choose to be debt free and pay off the money at one shot but my advice is – let your money grow instead, why put it in someone else’s account when it could be in yours? Don’t give away more money to the government than you should!
A quick calculation will mean $3000*3.05% p.a. = $91.50 of interest earned in a year right? However, that is inaccurate as the amount of money in the pot will decrease over time as you make payment, not to mention the power of compound interest. Let’s take an example of $3000 for income tax payment. Each month there will be a deduction of $250 to the bank. As such, after paying $250 the first month, you will have $2750 left in the bank, which will accrue $6.99 at a rate of 3.05% p.a. As you continue to make a payment of $250 per month, the amount of interest earned will fall as your base capital decreases, and I have taken into account the compounded interest to the base capital per month, hence the total amount of interest accrued over 1 year will be $42.76.
2. AXS with DBS/POSB credit cards
Savvy consumers will know that DBS/POSB cardholders used to be able to make credit card payments for taxes at AXS machines. As usual, this additional clause was published late last year when it grew too popular:
“With effect from 1 October 2013, Bill Payments using a DBS/POSB Credit Card via the AXS terminals will cease to earn DBS Points / DBS/POSB Loyalty Dollars. DBS Points / DBS/POSB Loyalty Dollars will continue to be awarded for other applicable transactions on your DBS/POSB Credit Card.”
Hence, do not make payment using DBS credit cards at AXS anymore!
3. Credit Card instalments
An administration fee of 0.7% on each tax amount will be charged to the HSBC Classic / Gold / Platinum / Revolution / Advance credit card. An administration fee of 0.5% on each tax amount will be charged to the HSBC Premier MasterCard credit card. An administration fee of 1.5% on each tax amount will be charged to the HSBC Visa Infinite credit card. The administration fee will be charged upon the successful deduction of the tax amount each time and will appear as a separate charge in your credit card statement.
The below diagram illustrates the payment process:
Note that $1 charged to your HSBC credit card will earn 1 point, hence for a tax payment of $3000, you will need to pay $3000 * 0.7% for most HSBC credit cards (or 0.5% for HSBC Premier)=$21. That translates t0 3000 HSBC points, which can be used to redeem 3*Caltex Car Wash with Sonex (worth $8*3=$24). The rest of the vouchers will request more points for redemption e.g. $10 shell voucher – 2500 points.
The administration fee is the same 0.7% for most cards and 0.5% Signature Priority customers. Every S$5 charged to your ANZ Credit Card earns you 1 Rewards Point or 2 air miles. Hence, $3000 worth of income tax payments will yield 600 Rewards Point or 1200 miles. For ANZ, according to their redemption guide here, you need 500 points to redeem a $10 Caltex voucher.
The difference between ANZ and HSBC is that for regular spenders, there will be a rebate on the administration fee (capped at $500) if you spend a minimum of $8000 per year (excluding tax amount) from 1 May to 31 Apr of the previous year, and clock a minimum of 3 transactions per month.
Even though there are a lot of options for income tax payment, most of the options do not provide any additional benefits. GIRO is actually a good option since it is an interest free payment for 12 months, and by leveraging on this option, you can potentially earn $42.76 in interest over 12 months (provided you put the money in a high yielding account like OCBC 360). For those who are keen to accrue credit card miles or points, you may consider HSBC or ANZ to make your payment and this can be done over 12 months as well since it is essentially a GIRO payment but with the bank paying on your behalf and you need to repay them every month. Provided that the HSBC rewards programme remains the same, it is possible to potentially benefit from the credit card points earned through credit card payment, and this additional amount spent on your account will probably get you another year of credit card waiver!