The tax season is here and before you know it, many of you will be preparing to file your taxes and figure out what types of tax relief you’re entitled for. However, the process can be daunting and tedious, as some of the terms tend to go right over your head. Here’s a handy guide of what you need to know and what you need to do.
What is an income tax?
Income tax is an annual tax levied by the government on the income earned by an individual and/or business. Basically, the government will take a small portion of the money you make as a contribution to the country.
Who needs to pay income tax?
As of 2015, any individual earning at least RM34,000 annually after EPF deductions is required to pay income tax. You are required to pay tax for all types of income, including income from your business or profession, employment, dividends, interest, discounts, rent, royalties, premiums, pensions, annuities etc.
For salaried employees, this not only includes your monthly salary, but also payouts such as bonuses, overtime, commissions, and all other taxable income. This applies to freelancers / gig workers as well.
However, you don’t have to pay taxes in Malaysia if you have been employed in the country for less than 60 days or for income that is earned from outside Malaysia.
Why do we need to pay income tax?
Since governments can’t operate without revenue, income taxes are one of the main sources of revenue for governments. The money you pay in taxes goes to many places such as paying the salaries of civil servants comprising government workers, teachers, police, doctors, firefighters etc.
Tax money funds many aspects that keep the country running such as healthcare, education, infrastructure, security and other types of development. For instance, it helps to ensure the roads you travel on are safe and well maintained. Taxes are also used to fund many types of government programmes that help the poor and less fortunate, as well as the building of schools and hospitals.
What happens if you don’t pay for income tax?
Because paying your taxes is a civic duty, tax evaders may face jail time for illegally dodging their responsibility. According to the Income Tax Act of 1967, “Failure (without reasonable excuse) to furnish an Income Tax Return Form” can result in fines of RM200 to RM20,000, imprisonment or both.
On the other hand, “Willfully and with intent to evade or assist any other person to evade tax” carries a much more severe penalty with fines of RM1,000 to RM20,000, imprisonment or both, plus 300% of the amount undercharged.
Tax evasion in this context refers to non-payments and underpayment of taxes owed. In addition, an “attempt to leave the country without payment of tax” will also result in fines of RM200 to RM20,000, imprisonment or both.
How do I pay my income tax?
Generally, the mandatory monthly tax deductions set by your employer would have already covered your income tax payments for the year, and filing your taxes often entails getting an income tax refund from the government.
But, for those who have a secondary income or run their own businesses, that isn’t always the case. If you have filed your income tax and there is a deficit to be paid, the Inland Revenue Board of Malaysia (IRB) offers a wide range of methods to pay for your taxes – enabling you to pay your income tax on time.
These methods include:
- Online via the IRB website
- Over-the-counter at IRB Malaysia counters
- Over-the-counter at banks and Pos Malaysia outlets
What is tax relief?
It is the deduction of a certain amount for money expended in that assessment year, from the total annual income. These are for certain activities or behaviours that the government encourages, as well as necessities or commitments to lighten our financial loads.
Tax reliefs can help reduce one’s chargeable income, and thus one’s taxes. If planned properly, a significant amount of taxes can be saved.
Who can claim for tax relief?
Here are some groups of Malaysians who can claim these tax reliefs:
- Single individuals
- Married couples with parents
- Parents with children
What can you claim tax relief on?
You can claim tax relief on various categories from medical treatment to education fees and insurance.
As for insurance tax relief, you can claim tax relief on the premiums paid, subject to certain terms and conditions. For pensionable public servants, they are entitled to a RM7,000 tax relief for their life insurance premiums. Meanwhile, non-civil servants can claim up to RM3,000 for life insurance and RM4,000 for Employees Provident Fund (EPF).
You can also claim for deferred annuity and Private Retirement Schemes (PRS) of up to RM3,000. Insurance premiums for education and medical benefits are also claimable for up to RM3,000.
Various items can be claimed for tax relief under the lifestyle category too:
- Books, journals, magazines, printed newspapers
- Sports equipment and gym membership fees
- Personal computer, smartphone or tablet (not for business use)
- Monthly bill for internet subscription
The maximum income tax relief amount for the lifestyle category is RM2,500.
To encourage domestic tourism, the government allows you to claim a tax relief of up to RM1,000 for local travel expenses such as accommodation at registered premises, entrance fee to tourist attractions and local tour packages through licensed travel agencies that are registered with the Ministry of Tourism, Arts and Culture.
For a full list of the tax reliefs, visit the IRB website here.
Keep in mind, the deadline for filing your individual income taxes is 30th April, so you should get to it soon before it’s too late. Remember to check your tax filing thoroughly and fill in the right information. If you have any questions, you can always reach out to the IRB via their website or hotline (03-8911 1000) for more information.