Malaysian Income tax rate

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Income Tax - Changes affecting individuals

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A2 INCOME TAX – CHANGES AFFECTING INDIVIDUALS
A2.1 REDUCTION IN INCOME TAX RATES AND CHANGE IN INCOME TAX STRUCTURE
Existing Legislation
Presently, the income tax for resident individuals is calculated based on scale rates ranging from 0% to 26% with the maximum rate of 26% being applicable to the chargeable income band of RM100,000 and above.

Proposed Legislation
It is proposed that the tax rates be reduced as follows: Chargeable income (RM) 1 – 5,000 5,001 – 20,000 20,001 – 35,000 35,001 – 50,000 50,001 – 70,000 70,001 – 100,000 100,001 – 250,000 250,001 – 400,000 Above 400,000 Existing rates (%) 0 2 6 11 19 24 26 26 26 Proposed rates (%) 0 1 5 10 16 21 24 24.5 25 Reduction (%) 1 1 1 3 3 2 1.5 1

It is proposed that non-resident individuals’ income tax rate be reduced by 1% from 26% to 25%.

Reference
Schedule 1 Part I Paragraphs 1 and 1A of the Income Tax Act 1967.

Effective Date
Year of assessment 2015 onwards.

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Likely Tax Effects and Implications
1. 2. The Monthly Tax Deduction (MTD) table applicable to tax deductions in 2015 will have to be revised by the tax authorities to take into account the reduction and change of structure in income tax rates. The proposed tax rates and the corresponding tax savings are tabulated below: Chargeable income brackets Present tax rate (%) 0 2 2 6 11 19 24 26 26 26 Proposed tax rate (%) 0 1 1 5 10 16 21 24 24.5 25 Present tax payable (RM) 0 100 100 200 300 900 1,200 1,650 2,850 3,800 6,650 7,200 13,850 39,000 52,850 39,000 91,850 Proposed tax payable (RM) 0 50 50 100 150 750 900 1,500 2,400 3,200 5,600 6,300 11,900 36,000 47,900 36,750 84,650 Tax savings

(RM) On the first On the next On the first On the next On the first On the next On the first On the next On the first On the next On the first On the next On the first On the next On the first On the next On the first Exceeding 5,000 5,000 10,000 10,000 20,000 15,000 35,000 15,000 50,000 20,000 70,000 30,000 100,000 150,000 250,000 150,000 400,000 400,000

(RM) 0 50 50 100 150 150 300 150 450 600 1,050 900 1,950 3,000 4,950 2,250 7,200

(%) 0 50.0 50.0 50.0 50.0 16.7 25.0 9.1 15.8 15.8 15.8 12.5 14.1 7.7 9.4 5.8 7.8

A2.2

MONTHLY TAX DEDUCTION AS FINAL TAX

Existing Legislation
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.

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Employers are required to make MTD payment after claiming deductions such as personal relief, relief for spouse with no income and child relief and after deducting compulsory deductions such as contributions to the Employees Provident Fund (EPF) or other approved schemes and rebates such as zakat, through employee salary deductions. In addition, the employees may make an irrevocable election to request their employers to deduct other optional deductions allowable under the Income Tax Act 1967 (ITA), in ensuring that the MTD payments are equal to the total final tax payable. Employees for whom income tax has been deducted through the MTD are required to submit tax returns to the IRB on or before 30 April in the following year. The submission of tax returns burdens the employees with the need to re-compute income tax which may be equivalent to the MTD made by the employer.

Proposed Legislation
To facilitate employees whose total income tax is equivalent to the amount of MTD deducted throughout the year, it is proposed that such taxpayers will no longer be required to submit the annual income tax returns. This will render the amount of MTD as the final tax paid. The proposal is only applicable to: (i) (ii) (iii) (iv) (v) employees who receive employment income prescribed under Sections 13(1)(a), (d) and (e) of the ITA; employees whose MTD are made under Section 107(2) of the ITA and the Income Tax (Deduction from Remuneration) Rules 1994; employees serving under the same employer for a period of 12 months in that year of assessment; employees whose MTD are not borne by the employer for that year of assessment; and employees who have not elected for joint assessment under Section 45 of the ITA.

Where an employee meets the above conditions and no return for that year of assessment has been furnished by that employee, it is proposed that: (i) (ii) (iii) the employee is deemed to have made an election not to file a return; the total amount of MTD deducted shall be deemed to be the tax payable of the employee for that year of assessment; and Director General shall not make an assessment in respect of the employee for that year of assessment.

However, the Director General retains the power to raise a deemed assessment or an additional assessment. Where an assessment is raised by the Director General, the deeming of the total amount of MTD deducted as tax payable for that year of assessment shall be disregarded.

Reference
New Section 77C of the Income Tax Act 1967.

Effective Date
Year of assessment 2014 onwards.

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Likely Tax Effects and Implications
This proposal aims to improve the efficiency of tax administration and to lessen the burden of taxpayers in completing and filing their income tax returns. This initiative is in line with the introduction of the Schedular Tax Deduction Calculator in 2009 which enables the employers to make exact deductions for the MTD. The proposed Final Tax System does not change the current requirements to deduct MTD, filing of the Return of Remuneration by an Employer (Form E) and the issuance of the statement of income (Form CP8A/CP8C).

A2.3

SPECIAL TAX RELIEF FOR MIDDLE INCOME TAXPAYERS

Existing Legislation
Resident taxpayers are subject to tax at progressive tax rates from 0% to 26% on their chargeable income after deducting allowable expenses from their aggregate income. The aggregate income comprises of income from employment, business and other sources. Allowable expenses deducted from the aggregate income are: (a) Contributions to approved institutions; and (b) Tax reliefs. The amount of tax charged on the chargeable income can be further reduced by deducting 2 types of rebates, namely: (a) RM400 for taxpayers with chargeable income up to RM35,000 and RM400 for the spouse; and (b) The amount equivalent to zakat contributions by Muslim taxpayers. The purpose of the tax rebate is to alleviate the financial burden of low and lower middle income taxpayers. However, there are presently no specific relief or tax rebates for middle income taxpayers earning monthly income between RM4,000 to RM8,000.

Proposed Legislation
In order to alleviate the financial burden of the middle income taxpayers, it is proposed that a special tax relief of RM2,000 be given to resident middle income taxpayers earning up to RM8,000 a month (aggregate income of up to RM96,000 per annum).

Reference
Likely to be gazetted by way of a statutory order.

Effective Date
Year of assessment 2013 only.

Likely Tax Effects and Implications
With the above proposal, resident middle income taxpayers earning up to RM96,000 per annum will enjoy tax savings of up to RM480 after deduction of this special relief from their aggregate income.

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A2.4

1MALAYSIA PENSION SCHEME (SP1M)

Existing Incentive
In 2010, the Government established the 1Malaysia Pension Scheme (SP1M) for the self-employed without fixed income to contribute voluntarily to the Employees Provident Fund (EPF). Presently, the individuals’ contribution amounts for SP1M is based on affordability and can be as little as RM50 with the Government making a contribution of 5% from the contributed amount subject to a maximum of RM60 per year. To date, about 66,000 contributors have participated in the scheme with total savings exceeding RM240 million.

Proposed Incentive
To encourage more people to participate in the scheme, it is proposed that the Government increases its contribution from 5% to 10% (i.e. from a maximum of RM60 to RM120 per year). This is expected to attract approximately 30,000 new contributors.

Reference
Employees Provident Fund (EPF).

Effective Date
1 January 2014 to 31 December 2017.

Likely Implications
This proposal is to ensure that the SP1M scheme continues to provide an incentive for self-employed individuals or those without fixed income to save for their retirement.

A2.5

INCENTIVE ON PRIVATE RETIREMENT SCHEME

Existing Incentive
Presently, a maximum relief of RM3,000 is given for contributions made to a Private Retirement Scheme (PRS) or deferred annuity scheme. The PRS is to be approved by the Securities Commission. However, there is no other incentive available for contributions made to PRS.

Proposed Incentive
It is proposed that individuals be given a one-off incentive of RM500 if the individual participating in the PRS meets the following criteria: (a) has a minimum cumulative investment of RM1,000 within a year; and (b) is 20 to 30 years old.

Reference
No proposed legislation yet.

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Effective Date
1 January 2014 to 31 December 2018.

Likely Implications
This proposal aims to encourage youths who are currently 20 to 30 years old to save for their retirement.

A2.6

TAXABILITY OF WITHDRAWAL FROM A DEFERRED ANNUITY SCHEME

Existing Legislation
Presently, there is no legislation to tax an individual on any withdrawal from a deferred annuity scheme.

Proposed Legislation
It is proposed that where withdrawal from a deferred annuity scheme by an individual is made before the age of 55 (other than reasons of permanent total disablement, serious disease, mental disability, death or permanent departure from Malaysia), the withdrawal will be taxed at a rate of 8%. For the purposes of the proposed legislation, deferred annuity refers to schemes contracted on or after 1 January 2014. Such schemes must be issued by: (i) (ii) insurers licensed under the Financial Services Act 2013; or takaful operators registered under the Islamic Financial Services Act 2013

and contain the Retirement Saving Standards approved by Bank Negara Malaysia. The same tax treatment will apply for withdrawals made from Private Retirement Schemes.

Reference
Section 2(1) of the Income Tax Act 1967. Section 6(1)(l) of the Income Tax Act 1967. Section 109G of the Income Tax Act 1967. Schedule 1 Part XVI of the Income Tax Act 1967.

Effective Date
1 January 2014 onwards.

Likely Tax Effects and Implications
As deferred annuity scheme are long term investment vehicles, the proposal is aimed to encourage contributors to retain their savings for retirement.

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