Personal Income Tax E-Filing For First Timers in Malaysia

By Kian Ng

6 commonly asked questions with regards to personal income tax e-filing for first-time tax-payers.

Q1. What Is Defined As “Income”?

You must pay income tax on all types of income, including income from your business or profession, employment, dividends, interest, discounts, rent, royalties, premiums, pensions, annuities, and others.

For salaried employees, this not only includes your monthly salary, but also things like bonuses, overtime, commissions, and all other taxable income that you received in that particular year.

Q2. Who Needs To Pay Income Tax?

Any individual earning more than RM34,000 per annum (or roughly RM2,833.33 per month) after EPF deductions has to register a tax file.

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.

It is advisable for those who earn lesser than the amount stated earlier to also file in their tax to keep a good record of their credit history.

Understanding Tax Rates And Chargeable Income

Here are the income tax rates for personal income tax in Malaysia for YA 2019 (i.e. Year of Assessment 2019).

Example Scenario

Your annual taxable income is RM48,000. Based on this amount, the income tax to pay the government is RM1,640 (at a rate of 8%). However, if you claimed RM13,500 in tax deductions and tax reliefs, your chargeable income would reduce to RM34,500. This would enable you to drop down your tax bracket to 3% instead. Which means, you only require to pay RM585. That’s a difference of RM1,055 in taxes!

Please note that chargeable income is your taxable income AFTER deducting any tax deductions and tax relief. It’s very important you know how it works because as you can see, the tax rate you are charged with increases as your chargeable income does. The more you reduce your chargeable income through tax reliefs, the lesser your final tax amount will be!

Q3. When Do I Need To File (Submit) Online for My Income Tax Form?

• For the BE form (resident individuals who do not carry on business) the deadline is usually mid-May for e-Filing.

  • This year, that should 15 May May 2020 via e-Filing.

• For the B form (resident individuals who carry on business) the deadline is usually the end of mid-July for e-Filing.

  • This year, that should be 15 July for e-Filing.

• Important note: The Inland Revenue Board (IRB) in a statement in Mar 2020 announced that deadline to submit income tax return forms has been extended for 2 months due to the Movement Control Order (MCO) which is starting from March 18 until March 31. You can file your taxes online via ezHASiL on the LHDN website.

Q4. How Do I File My Income Tax – Is There A Form To Fill

Step 1. Register as a first-time taxpayer on LHDN e-Daftar

Before you can file your taxes online, you need to be able to log into ezHaSiL. To do so, you need to do the following.

1. Register on e-Daftar to get your income tax number.

2. Get your PIN number from the nearest LHDN branch to log in to ezHASiL for the first time.

Step 2. Log in to ezHASiL and access e-Filing

Once you have successfully logged into ezHASiL, click on e-filing.

Step 2. Select Your Income Tax Return Form (ITRF)

Here are the different types of ITRFs depending on which category you fall under as shown below. Select the appropriate one relevant to you. For example, if you are employed, you would select e-BE.

Once you are able to access to the right e-form, go right down to the bottom and start filling in all figures required. You can choose to view your form in either English or Bahasa Melayu. The images cropped below are breakdown of what a BE form for residents earning income without a business will look like.

Step 3. Filling Up Your Form – Individual Particulars

In this section, check to see that your personal details are displayed correctly on the form. Here are a few things to take note:

• Type of assessment – whether you are doing filing together or separately with your spouse, and so on.

• Incentive under section 127 refers to the Income Tax Act 1976. It is only applicable to those who have incentives claimable as per government gazette or with a minister’s approval letter.

• A TAC via SMS which is needed to sign and submit your e-form will be sent to your handphone number registered to LHDN, so ensure it is correct.

• Tax refund, if applicable, will be routed to bank account number provided.

• Disposal of asset under the Real Property Gains Tax Act 1976 – relevant if you have sold any property last year.

Step 4. Filling Up Your Form – State Your Income

Under statutory income, fill out all the money you earned from employment, rents, and other sources in the respective boxes. This is what your EA form (provided by your employer) states with your annual income earned from your employer. However, there are several reasons why you shouldn’t accept the annual income stated on your EA form as the final figure for your statutory income from employment such as benefits-in-kind such as cars, accommodation, and etc.

Once you have keyed in all your statutory income, the form will automatically total it up to show your aggregate income.

Step 5. Filling Up Your Form – Tax Reliefs and Rebates

The next step will be to move on to any tax deductions you may be eligible for so you can lessen your aggregate income.

At the bottom of this section, you need to key in the total monthly tax deductions (MTD) paid during your year of assessment. MTD or Potongan Cukai Bulan (PCB) is the compulsory mechanism where employers deduct monthly tax payments from a taxable employee’s salary. You can find this amount on your EA form (provided by your employer).

The full list of tax reliefs you can claim for is on the LHDN website.

Once all your tax reliefs have been claimed, your chargeable income determined, for all Muslim tax payers, you can claim for any tax rebates for. Zakat and fitrah can be claimed as a tax rebate for the actual amount expended up until the total tax amount.

For example, if your employment income is RM50,000 a year and you have claimed RM15,000 in tax reliefs. This would bring your chargeable income down to RM35,000 and the amount of tax you have to pay is RM600. If you have contributed RM400 in the last year on zakat, you can minus that amount from the RM600 and end up with a final tax amount of RM200 to pay.

Step 6. Filling Up Your Form – Summary

On this page, you should see the final tax amount displayed. You will have either one of two scenarios, either the figure displayed is positive or negative.

Don’t worry if your tax amount is in the negative, this is due to amount paid through MTD – which means you will get a tax refund from LHDN.

This page allows you to cross check on all figures keyed in by going go through the form again and amend it, if any. Once you are certain your form, click “Continue”.

On the declaration page, request a TAC via SMS from the number you have registered with LHDN and key it in. Next, click the sign and submit button, enter your identification number and password in the pop-up, and press the sign button. Now, you’re done with filing your income taxes for the year of assessment!

REMINDER: Before you exit the website, make sure to save and print the acknowledgement and e-BE form for record-keeping purposes. All income taxpayers shall keep their records for at least 7 years just in case LHDN randomly selects any taxpayers to justify their income tax payment for previous years.

Q5. Can I Amend My Submitted Tax Form?

Once you’ve submitted your form, you cannot make any further changes to it online via e-Filing. If you wish to make any amendments to your income tax declaration, you need to submit an appeal for amendments on or before 30 April 2020.

Q6. After Submitting, How Do I Pay Your Income Tax?

Now that you’ve filed your taxes and determined your final tax amount, you’ll find yourself in either one of two scenarios;

• You may find that your final tax amount while filing is lesser compared to what was has been deducted due to tax reliefs. Thus, you will be eligible for a tax refund from LHDN, credited to the bank account you’ve provided (in Step 3) within 30 working days after tax submission.

• However, if you still owe LHDN some unpaid taxes, you’ll have to pay them before the due date which is 30 April 2020. The list of how to make payment is available on LHDN website.

Important Reminder

If you pay your taxes late, a penalty of 10% will be imposed on the balance of tax unpaid after the deadline of 30 Jun 2020. If the tax and penalty is not paid within 60 days, a further penalty of 5% will be imposed on the amount owed.

Do you have any inquiries or tips about tax filing? Share with us in the comment section below.

Prihatin Economic Stimulus Package

Detailed breakdown and thoughts on the Prihatin RM250 billion economic stimulus package.

Prime Minister Tan Sri Muhyiddin Yassin has on Friday (March 27) unveiled an economic stimulus package known as package Prihatin or caring package valued at RM250bil that will benefit all Malaysians.

Some of the highlights of the economic stimulus package are as follows:

Business Assistance

Infrastructure / Development

• RM400 million invested into telecommunication infrastructures.

• Infrastructure projects will be continued, with additional provisions up to RM2 billion.

• RM 1 Billion to Kementerian Kesihatan Malaysia (KKM) to combat Covid-19 pandemic.

• RM 100,000 to RM 200,000 special fund to develop short term "agrofood" that can produce within 3 to 6 months for Pertubuhan Peladang Kawasan / Pertubuhan Nelayan Kawasan

Loans / Financing

• RM3 billion worth of financial assistance for SME as working capital at 3.5% from the previous 3.75%.

• Funds for SME increased to RM6.8 billion to provide access to liquidity.

• Bank Simpanan Nasional to allocate RM 500 mil in micro credit facility at a rate of 2%.

• Up to RM300,000 funding given to SME below 4 years history under BizMula-I and BizWanita-I.

• RM5 billion total funding provided to SMEs that failed to obtain loans through CGC with a guarantee amount up to 80% of the total financing.

• Moratorium extended for loans under TEKUN, MARA, and all government agencies to SMEs.

• Sectors affected by COVID-19 may obtain 80% working capital loans up to RM20 million with government guarantees managed by Danajamin.

• Start up capital for Micro Entrepreneurs (B40) by Islamic Banking Instutitions, State Majlis Agama

Regulatory Deductions / Subsidies

• Tax deferment to all SME for 3 months - need to apply through amendment of either CP500 or CP204 forms with LHDN.

• Amendment in income tax payable for other sectors affected by Covid-19 in month 3, 6 and 9 of their financial year - need to apply through amendment of either CP500 or CP204 forms with LHDN.

• HRDF Levy exemption given to all 63 subsectors under Manufacturing, Services and Mining & Quarrying sectors for 6 months from April to Sept 2020. Will recommence payment of levy for Sept 2020 before 15 Oct 2020. Employers can still apply for the training grants during this period utilising the available levy in their account.

• Restructuring of EPF deductions on 15 April 2020. Employers will have the option of delay the payment to EPF, restructuring and rescheduling of the EPF employer’s contribution.

• Subsidy of RM 600 per month for 3 months for all employees earning below RM 4,000 for employers who have loss more than 50% of their revenue since 1 Jan 2020. Employers can't ask their employees to take unpaid leave /retrench the employees / reduce their salaries once the programme commences. This is an extension of the Employment Retention Programme (ERP) under SOCSO. Employers will have to apply on behalf of their employees at www.perkeso.gov.my.

• Extension of services contract with government / government agencies for all affected contractors for 1 month (once-off).

• Payment of salaries for all employees of contractors servicing government / government agencies affected by Covid-19 / MCO.

While it’s good that some assistance has been provided to help the businesses especially SMEs that are being affected by Covid-19 Pandemic and subsequent extension of MCO, the general view that this is not sufficient.

The main assistance provided to SMEs are government guarantees for financing that SMEs that need to apply for. SMEs makes up 98.5% of total registered businesses in Malaysia. If all the SMEs that have been affected by Covid will be applying for the same funds, the question at hand is, will each SME get enough to keep their respective business afloat during this trying times? And how fast will the financial institutions go through the applications to ensure that the funds from the financing will get to the SMEs to extend their business lifelines.

SMEs’ contribution to Malaysia’s GDP in 2019 increased to RM521.7 billion, accounting for 38.3% last year compared to RM491.2 billion or 37.8% the year before. If the situation persists, the SMEs contribution to the GDP will be affected negatively in the long run.

This in turn will have an impact of the employment of millions of Malaysians who are currently employed with all these SMEs.

Individual Assistance

On the individual assistance provided through the Economic Stimulus Package, the details are as follows:

Cash Handouts

• Households with monthly salary of RM4,000 and below will receive RM1,000 and RM600 in April and May respectively.

• Households with monthly salary between RM4,000 and RM8,000 will receive RM500 in both April and May.

• Individuals that are single, aged 21 and above, with monthly salary of RM2,000 will be given RM500 in April and RM300 in May.

• Individuals that are single, aged 21 and above, with monthly salary between RM2,000 and RM4,000 will be given RM250 in both April and May.

• Balance of BSH will be distributed in July.

• RM200 will be given to university and institute of higher learning students in May.

• RM500 given to e-hailing drivers and RM600 to taxi drivers.

Discounts

• 15% - 50% discount in electricity bills depending on usage to households for 6 months.

• Free internet for telecommunications services customers until the end of MCO. Free 1 GB data by most major telco providers, with additional value added services included (differs from one provider to another)

Special allowances

• Increase of RM 200 in allowance from RM400 to RM600 given to healthcare personnel until the end of COVID-19.

• RM500 once off given to civil servants & pensioners.

• RM200 once off given to public officials & volunteers that assisted in the MCO.

Moratorium

• 6 months for PTPK debtors, similar to provided to PTPTN borrowers, with automatic enrolment.

• 6 months for PPR Residents under rental and rent to own scheme including rental scheme under DBKL.

Personal Finance

• RM50 a day for a maximum of 14 days given to COVID-19 patients in B40 group through MySalam for both hospitalization / quarantine cases.

• RM 300 / person for Insurance / Takaful Policy Holders asked to to go Private Hospitals / Laboratories for Covid-19 Screening by KKM.

• 3 months payment holiday for those affected by Covid-19 for insurance / Takaful Life / Family Policy Holders. Policies will continue to be enforced. Policy holders need to apply with their respective providers. Need to show proof that you are affected by Covid-19 (e.g. loss of income, contracted Covid-19). Any deferment of payment, will have to be paid back after the deferment period is over.

• Withdrawal from PRS Account B up to RM 1,500 without any penalty between April - December 2020 for all PRS Account Holders.

Charity

• RM25 million grant given to charity organizations to assist those in need.

The main beneficiary of this secondary fiscal package will be the B40 segment of the economy. The one-off cash payments and waivers of monthly commitments directed to this segment of the group will likely provide the much-needed financial assistance, particularly to those “on-the-ground” businesses and retirees.

This additional assistance provided in this secondary fiscal package is a welcomed boost. Allowing policy holders to apply for a 3 months deferment for their respective insurance and takaful policies will provide some relief, even though this is just limited to those that can proof that their lives have really been affected by the current situation. Additionally, the withdrawal from the PRS Account B, will have similar effect as above to alleviate the cash flow situation of some households affected.

However, we feel that the earlier stimulus package which included the automatic loan moratorium, which so far in our opinion is the biggest game changer that will help most households especially the M40 to cope with the effects of Covid-19 and the extended MCO.

As at end-June 2019, Malaysia's household debt reached 82.2% of GDP compared with its peak of 86.9% in 2015. It is among the highest in Asia and has exceeded those of several high-income nations including the United States (75.0%) and Japan (58.2%). The automatic loan moratorium will help to improve the cash flow situation and potentially making more Malaysians being able to put money aside for their emergency savings which will become critical if the MCO is extended further. It also presents an opportunity to pay down higher interest debts like personal loans and credit card debts.

All in all, we view the fiscal package positively as it is targeted to support consumption, which is the major driver of the domestic economy. The availability of funding and fiscal ammo released to the financial system could lend significant support to companies and businesses.

3 Ways To Minimize Financial Impact During This Difficult Time

By Rafiq Hidayat Mohd Ramli

The Covid-19 pandemic has left us feeling afraid and dreading what the future may bring. In this situation, certain financial steps should be taken to ensure the continuation of our way of life.

Originally, I was planning to write an article with regards to how to prepare for a Zombie Apocalypse  from a financial standpoint as that was a question that one of my clients had asked me during a financial plan presentation session in early February this year.

I did my research as this was a topic that was alien to me. I was surprised that there were several groups out there that have put a lot of thought into this area. However, as work started to pile up, I put aside writing the article, until the whole Covid-19 pandemic came about and disrupted our lives as we have known it.

So, instead of writing an article on the topic as originally planned, I plan to share with readers, what are the things that one should have prepared in case of emergencies such as the one we are currently going through right now here in Malaysia (and the whole world).

Before I start, I would like to state my biggest assumption while writing this article, is that the financial system will not collapse totally, which means you will still have access to your hard-earned funds or investments if you need to access them.

Now, let us take a look at some steps to minimize the financial impact we experience during this difficult time.

#1. Emergency Funding

The first thing that every single person or family needs to have ready (before the emergency) is their emergency funding. Different people have different definition of the amount that needs to be put aside, but I would recommend that you save at least 6 months of your monthly expenses or better still 6 months of your monthly gross income (under the assumption that this is higher than your expenses).

The higher the amount means more money needs to be put aside, however, when emergencies happen like the current pandemic, you would have access to a bigger pool of funds that would help you last longer compared to those that have not prepared their own emergencies funds.

Just a side note, your emergency funds should be stashed away safely in the highest dividend yielding account that will be reduced by any losses due to market condition e.g. ASB , Tabung Haji, Fixed Dividend, etc.

Another point to ponder, the funds should be liquid or at least near liquid, as you will need to be able to access it fast and easy in the case of the emergency.

For a business owner or entrepreneur, please separate your business emergency funds from your personal emergency funds. You should ensure that you have at least a few months of your operational expenditure for your business put aside in case you are ordered to close shop, similar to the current situation.

#2. Review your budget

Next step, is to review your budget. The more you can reduce your budget, means that the money that you have or will put aside in the first step would last longer. Look into cutting unneeded expenses e.g. wants from your list of expenditures as this might not be necessary if you’re focusing on your survival during the emergency.

Once you have finalized the review, please ensure that when the event actually happens, you stick to the budget that you have prepared and do not overspend because you’re panicking. Going over budget will put yourself at risk.

#3. Having protection

Do I need to focus on protection i.e insurance or takaful in order to prepare me or my family in the event of a pandemic? Having some protection will help, however, in this case your standard coverage will not help you currently, assuming that you don’t die or don’t succumb to the illness.

If you are hospitalized, then a hospital income benefit coverage will help especially for those who are business owners, and/or gig workers. For salary earners, if you do have the extra income, you could also take up a similar coverage, as it never hurts to be prepared.

If and when there are protection for loss of income (for companies or individuals) available in Malaysia e.g. similar to the Employment Insurance Scheme (EIS) under SOCSO, I would advise taking it up as soon as possible.

What about my investments?

First of all, your investments should be medium- to long-term in general. It is normal for changes in market conditions which will affect your portfolio in certain markets. However, if you have a well-designed portfolio with strategic asset allocation to weather different types of market conditions, then you should be prepared for most changes in the economy with the exception of total failure of the financial system.

What would I need to do with regards to my investments in the current situation? My advice to you would be as follows:

• Keep adding to your investments regularly, not lumpsum (we don’t really know where’s the bottom). You’ll reap the rewards on the way up if you believe long term the market will recover and be better in the long run. I am personally in this group as i believe there are a lot of good investment opportunities out there in the market.

• Do nothing and hold your positions. If you had done proper asset allocation, have your emergency funds stashed away, the current situation still wouldn’t impact you as bad if you didn’t have your emergency funds.

• Switch to lower your exposure. For those that are spooked and have a lower risk profile, this would be action that you would take. Just be mindful, that if you don’t switch back on the upswing, you might lose out in the long run.

• Realize your losses. Cut bait. If so, please take note, that maybe exposure to the market was never right for you in the first place.

Conclusion

While none of us would like to be in this situation in the first place, it never hurts to plan. Those who fail to plan, plans to fail. Take care everyone, and remember to stay at home, so that this period of uncertainty is not prolonged which will create more stress not just to our personal finances, but the finances of the country as a whole.

Do you have any preparation regarding your financial planning in this tough times? Share with us in the comments section below.