Pros and Cons of Paying Taxes Using Credit Cards
Ah, taxes. You probably cringe when you think of paying taxes, but you have to pay your dues to the government nevertheless.
There are various ways through which you can make your tax payments. For instance, have you thought of using your credit card?
The Inland Revenue Authority of Singapore (IRAS) does not directly allow you to pay your taxes using your credit card, simply because of the extra costs associated with it. However, there are a few credit cards that have facilities that allow you to do so via special payment schemes – for a processing fee, of course.
The credit cards in Singapore that currently enable you to pay taxes through them include:
- Standard Chartered Visa Infinite Credit Card
- OCBC VOYAGE Credit Card
- Eligible DBS credit cards
- Eligible HSBC credit cards
Some of the cards even reward you when you pay taxes through them. Others count the amount paid towards the minimum spend requirement. For example, the Standard Chartered Visa Infinite Credit Card gives you Rewards Points for every dollar you spend on taxes (up to 3.5 Rewards Points for each S$1), while the OCBC VOYAGE Card gives you VOYAGE Miles on the basis of the repayment plan you choose.
In this article, we’re going to analyse the various aspects associated with using credit cards for tax payments.
How Exactly Does Using a Credit Card to Pay Taxes Help You?
There are a number of benefits associated with settling your tax dues through your credit card. Take a look at how you can make this work to your advantage.
- The rewards you get: Does your card have a minimum-spend criterion that you’re finding hard to meet? Now, charging your tax payments to your credit card can help you fulfil such criteria. Even better, certain cards reward you when you make tax payments using them.
- 0% interest instalment schemes: Since credit cards give you the money up front and you then pay it back in instalments, you get more time to pay off these dues. Many of these instalment payment schemes charge no interest either. A win-win situation, wouldn’t you say?
- Earn interest on your money: Credit cards usually give you a grace period to pay your card bill. Even if you have the money with you, why not make use of this feature and earn interest on it by investing it or keeping it in the bank for the period?
Okay, What’s the Downside to This?
Before you get ahead of yourself and charge your tax dues to your credit card, it would be wise to look at some of the unfavourable aspects of doing so. “Look before you leap”? Maybe wait before you pay.
- Processing fees: Cards generally charge you a processing fee for such payments. That means you end up paying more than just taxes. Let’s say you owe the government S$5,000 and you want to pay the amount using your DBS credit card through the My Preferred Payment Plan. You will be charged a processing fee of 3%, which means that you will end up paying an additional S$150 over and above your taxes.
- Not suitable for last-minute payments: You can’t use your credit card to pay taxes at the last minute. Most cards require at least 10 days or so to process your application. Besides, you have to pay your dues a week before the last date. So, if you’re planning to pay closer to the due date, credit cards are not a feasible option.
- Eats up your credit limit: Adding your tax payments on your card only increases the amount of credit card debt in your name. And if you’ve already used up a lot of your credit limit, adding your tax payments to it might just put you in danger of overshooting your limit.
- Unwanted interest: If your card dues are too high, you run the risk of not being able to pay them off on time. This will attract a high rate of interest (in the region of 25% p.a.) on your unpaid balance, adding unwanted financial burden on you.
- The responsibility of paying is on you: Since the IRAS does not directly accept credit card payments, the money goes into your chosen bank account. The responsibility to pay the tax to the government lies on you. The bank will not follow up with this either.
All said and done, using a credit card to pay tax dues is a battle between the costs involved and the benefits you get. It surely is a convenient and easy way to pay off what you owe the government. At the same time, it comes at a cost.
If you’re sure that the benefits outweigh the costs of using this method of paying taxes in Singapore, then this might a good option for you. If not, it would be better to choose another one of the many available options to settle what you owe.
This article was written by BankBazaar.sg.
BankBazaar.sg is a leading online marketplace in Singapore that helps consumers compare and apply for financial products such as credit cards and personal loans.