5 Basic Things About Income Tax New Taxpayers Should Be Aware of

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5 Basic Things About Income Tax New Taxpayers Should Be Aware of

Recently, NST Online reported that the Inland Revenue Board (IRB) has been monitoring social media and bank accounts of people who have unexplained and extraordinary wealth, especially those in possession of a large amount of cash, luxury cars, jewellery, and property.

“Basically, we are looking into those who neglected or may have under-declared their income in their (income tax) filings with us,” said IRB chief executive officer Datuk Seri Sabin Samitah in the report.

If you’ve never filed your taxes for whatever reason, now is the best time to do so, especially with the ongoing Special Voluntary Disclosure Programme (SVDP or PKPS). Under this special programme, which ends in June 2019, the IRB had promised confidentiality and lenient penalty to taxpayers who may have misreported their tax filings or did not declare their income.   

Must read: 4 Important Things to Know About Income Tax Special Voluntary Disclosure Programme

So all the new taxpayers, pay attention! Here are 5 basic things about income tax in Malaysia you should be aware of.

1. Types of taxable income

5 Basic Things About Income Tax New Taxpayers Should Be Aware of

In general, a taxpayer is required to pay tax on all kinds of earnings, which may include income from employment, commissions, overtime work, allowances, directors’ fees, dividends, rents, royalties, and business income received by individuals, companies, cooperatives, or associations on a yearly basis.

Creatives who are involved in the ‘digital economy’, for example, Instagram influencers or YouTubers, are also required to pay their taxes.

Related: 9 Different Methods to Pay Income Tax in Malaysia

2. Rates of income tax

Basically, the more you earn, the higher the income tax rate will be. The lowest percentage rate is 1%, while the highest is 28%. Here’s a table on income tax rates for individuals for Assessment Year 2018:

Calculations (RM) Rate (%) Tax (RM)
0-5,000 On the first 2,500 0 0
5,001-20,000 On the first 5,000
Next 15,000
1 0
20,001-35,000 On the first 20,000
Next 15,000
3 150
35,001-50,000 On the first 35,000
Next 15,000
8 600                         
50,001-70,000 On the first 50,000
Next 20,000
14 1,800
70,001-100,000 On the first 70,000
Next 30,000
21 4,600
101,000-250,000 On the first 100,000
Next 150,000
24 10,900
250,001-400,000 On the first 250,000
Next 150,000
24.5 46,900                     
400,001-600,000 On the first 400,000
Next 200,000
25 83,650
600,001-1,00,000 On the first 600,000
Next 400,000
26 133,650
Exceeding 1,00,001 On the first 1,000,000
Next ringgit
28 237,650                   

Information source: IRB website

Related: 7 Meaningful Ways to Spend Your Income Tax Refund

3. The hefty fines awaiting those who commit these five most common tax offences

There are at least five tax offences that are most commonly committed by Malaysians. AskLegal did an in-depth explanation of each type of offence if you’re interested to know more. Meanwhile, see if you accidentally commit any of these common tax offences:

Tax Offence Provisions under the Income Tax Act 1967 Penalty
Giving bad tax
Section 114(1A) RM200 to RM20,000 fine and/or imprisonment for up to 3 years
Not submitting your tax return form Section 77(1) RM200 to RM2,000 fine and/or imprisonment
Under declaring how much you earn Section 113(1) RM1,000 to RM10,000 fine plus200% of the undercharged tax
Not paying your taxes Section 114 RM1,000 to RM20,000 fine plus 300% of the tax you tried to avoid paying
Not keeping relevant documents for income tax Section 119A RM300 to RM10,000 fine and/or up to 1-year imprisonment

Source: AskLegal

Related: 6 Ways Women Can Save More on Taxes

4. Tax relief

5 Basic Things About Income Tax New Taxpayers Should Be Aware of

Tax relief refers to expenses or items that are deductible in order to reduce the amount of tax owed by an individual or business entity. The tax exemption list typically varies depending on government policies announced in the Government Budget each year.

Some of the tax relief include education fees, medical expenses, childcare fees, and purchase of lifestyle items (such as books, magazines, computers, smartphones, tablets, sports equipment, gym memberships, and internet subscription).

If you and your spouse would like to save more, consider a joint filing. Most of the time, filing a joint tax assessment allows the husband to take advantage of the additional spouse relief if the wife earns less than RM4,000 a month.

If the working wife’s monthly income is more than RM4,000 a month, consider a separate assessment instead, as each can take advantage of the individual relief plus the other applicable reliefs.

Check out the complete list of tax relief on IRB’s website.  

Also read: Online Grocery Shopping: Where Can You Get SST-Taxed Items with a RM30 Budget?

5. Receipts should be kept for 7 years

According to IRB, taxpayers should keep all the receipts for seven years to allow for smooth auditing when they’re making a claim. Should there be anything questionable on a taxpayer’s tax form, the IRB will ask the taxpayer to submit the receipts as evidence. Taxpayers who fail to do so could land themselves in trouble. So when you make your claims, make sure you have all the relevant documents to back you up.

Related: Infographic: How to File Income Tax Returns Online in 6 Easy Steps

What you should do now

If you earn an annual income of RM34,000 (after EPF deduction) and above, register as a taxpayer immediately. Failure to declare your income and filing your taxes could get you in huge (mainly financial) troubles. A high penalty rate of 80% to 300% will be imposed beginning July 1 for those who fail to do so. 

Look into the SVDP, which allows taxpayers to come forward and declare any unreported income with a lower penalty rate (10%-15%), provided you file your taxes before June 30, 2019. No further review will be made if you opt for this programme, and your family members and/or business partners will be spared from being audited.

To get you motivated to start paying your taxes, there are benefits to look forward to. Besides the tax relief, you could increase your chances of getting your loan or credit application approved by a financial institution if you are self-employed. We all know how much harder it is for the self-employed to get a loan!

Similarly, for individuals, your past BE form submission could get you on the bank’s good side when you’re applying for a housing or car loan. Basically, your tax payment record could really serve you well in this situation.   

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