Monthly Tax Deduction as Final Tax

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Under the Budget 2014 proposals, taxpayers who are under employment may not need to file their personal tax returns from the Year of Assessment (YA) 2014 onwards, rendering the amount of monthly tax deduction as the final tax.

The government’s rationale is because currently, an employer would have already made Monthly Tax Deduction (MTD) payments from an employee’s salaries after deducting personal relief, relief for spouse with no income, child relief, contribution to the Employees Provident Fund (EPF) and zakat payment. In addition, an employee may request his employer to deduct other reliefs such as life and medical insurance, books and magazines, parents’ medical expenses, etc. by completing a prescribed form (Form PCB/TP1) so that the MTD payments are equal to the employee’s final tax payable.

To recap, Monthly Tax Deduction (MTD) is a mechanism to deduct monthly tax payments on employment income received by employees in the current year. Employers are responsible to remit MTD to the Inland Revenue Board (IRB) every month as provided under the Income Tax (Deduction from Remuneration) Rules 1994.

Therefore, in such a situation, the act of the employee subsequently submitting his tax return comes 30 April of the following year, pretty redundant.

However, this option is only applicable to employees who fulfill the following conditions:

  1. employees who receive only employment income and not provided with benefits-in-kind (eg. company car, driver, etc.) and living accommodation;
  2. employees whose MTD are made under the Income Tax (Deduction from Remuneration) Rules 1994;
  3. employees serving under the same employer for a period of 12 months in a calendar year;

  4. employees whose taxes are not borne by the employer; and
  5. employees whose spouse do not elect for a combined assessment.

That pretty much excludes an employee who has other sources of income such as rental income or business income and who had changed jobs during the year. Such employee would therefore still have to file his tax return.

What if such qualifying employees omit to include some tax reliefs in their MTD calculations? Not to worry, as they can still opt to file their tax returns to include those reliefs.

This may sound like good news for the employees, but not so for the employers.

With this proposal, the government has effectively passed the entire burden of calculating and collecting employment taxes, to the employers. On the surface, this may seem nothing new for the employer, with the present MTD system in place. But what will prove to be administratively burdensome and may require more manpower, is that besides accounting for the usual tax reliefs (personal relief, relief for spouse with no income, child relief, contribution to the Employees Provident Fund (EPF) and zakat payment) in the calculation of the MTD now, the employer would now have to take into account the various other personal reliefs in the MTD calculation. Imagine the workload of the poor human resource personnel who has to unenviable task of accounting for all of the above!

In order to meet halfway, it is suggested that the employees should not submit their claims for personal reliefs via the Form PCB/TP1 monthly but instead, do it half-yearly (say in June and December) so as to ease some administrative work for the employer (and not get on the employer/HR personnel’s nerves!).

An employee would be deemed to have elected not to submit his return form for the year if the tax return is not submitted to the IRB by the 30th of the following year (tax return for 2013 employment income not submitted by 30 April 2014). The employee would therefore have to decide before hand whether to submit or not before this due date. I recommend that such individual should still prepare a tax computation on his own to determine if he is eligible for a tax refund and if so, submit his tax return accordingly.

The information provided is without any representation or warranties either expressed or implied. While the author makes reasonable efforts to provide information which he believes to be reliable, the author makes no representations or warranties that the information provided is complete, accurate, up to date or non-misleading. The author expressly disclaim all and any liability to any person in respect of anything and of the consequences of anything done or omitted to be done by such person in reliance (whether whole or in part) upon any part of the contents of this publication. The information and views contained in this publication does not constitute professional advice and accordingly should not be relied upon as an alternative to such. You are advised to seek competent professional advice before acting on the views.

About Richard

Richard Oon Hock Chye has more than 25 years of experience in taxation and business advice, with particular expertise in Malaysian property law. He began his taxation career with Deloitte Touche Tohmatsu, a ‛Big Four’ accounting firm, before starting his own practice, ConsulNet Tax Services Sdn. Bhd., in 1996. He is currently the National Tax Director of TY Teoh International, one of the leading consulting service providers in Malaysia. It is a member of the MSI Global Alliance, a global network of more than 250 independent legal and accounting firms, in over 100 countries. Richard sits on the board of two companies listed on the Main Board of Bursa Malaysia, as an independent non-executive director. He is also a regular contributor to several magazines and publications, and has shared his tax expertise on numerous occasions with organisations and property developers. As well as being a member of the Malaysian Institute of Accountants (MIA), Richard is a fellow member of both the Association of Chartered Certified Accountants (ACCA) and the Chartered Tax Institute of Malaysia (CTIM). He is a Certified Financial Planner (CFP) and holds a tax agent licence issued by the Ministry of Finance. Richard is also the author of the book, ‘Every Property Investor’s Guide To How To Pay Less Tax Legally’.

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