SO you want to consider opting for the “final tax” plan but are not quite sure what it’s about?
KPMG Tax Services executive director Datin Pauline Tam (pic) tackles some of the questions raised by The Star readers.
> With reference to Monthly Tax Deduction (MTD) as “final tax”, can you please advise how it actually works?
Your employer would have been deducting MTD from your monthly remuneration (comprising your salary, allowances, etc) if your remuneration falls within the taxable income bracket.
Your employer would normally rely on your personal data submitted to your Human Resource department to compute your monthly MTD.
In other words, your entitlement to personal relief, spouse relief and child relief would be taken into account and this would reduce your MTD.
If you are entitled to other relief such as medical expenses for your parents, purchase of books and magazine and computer, etc, and your employer does not have such details to compute the further reduced MTD, you would have to claim this relief in your yearly tax returns and request for a tax refund.
To facilitate the computation of MTD such that the amount is equivalent to the actual tax liability of the employees, the Inland Revenue Board (IRB) has designed a form, Form TP1 (downloadable from the IRB website) for employees to complete and submit the details of their expenses of the following nature to their employers:
1. Medical treatment, special needs and carer expenses for parents
2. Basic supporting equipment for use by the disabled employee, spouse or parents
3. Self education fees
4. Medical expenses on serious diseases
5. Complete medical examination
6. Purchase of books/magazines/journals
7. Purchase of personal computer (every three years)
8. Net deposit in Skim Simpanan Pendidikan Nasional (SSPN)
9. Purchase of sports equipment
10. Alimony payment to ex-wife
11. Life insurance
12. Education/medical insurance
13. Deferred annuity
14. Interest on housing loan (stipulated conditions must be met)
15. Zakat payment if not deducted through MTD already
If you opt to regard your MTD as your final tax, you are required to submit the duly completed Form TP1 to your employer so that your MTD can be adjusted accordingly (i.e. your tax liability is equivalent to the total amount of MTD).
This is, however, subject to your employer’s approval.
Please bear in mind that this option is only applicable for an employee:
> who only receives employment income and is not provided with benefits-in-kind and living accommodation
> who is subject to MTD
> employed by the same employer for the whole calendar year
> whose tax liability is not borne by the employer
> whose spouse did not elect for combined assessment.
On the basis that you can meet the above conditions, you would be deemed to have made an election not to submit a return if you have not submitted a return by April 30. Note that this option is only applicable from next year onwards. In other words, you are still required to file your 2013 tax return by April 30, 2014.
> Are we to fill in the Form (TP1) with an estimated figure? For example, I wouldn’t know how much I’m going to spend on books or journals in year 2014, so how am I going to fill in that form? Please give some examples.
You are not supposed to complete the form based on estimated figures.
You may make an irrevocable election in the Form TP1 for additional relief as stated above and submit the duly signed and completed form to your employer based on the amounts expended by you. Your employer may approve and accept the Form TP1. It is important to note that your employer is not required to check your receipts for any reliefs claimed in your form TP1. The onus in completing the form TP1 correctly lies with you and you have to ensure that the amounts claimed by you are supported with receipts.
Your employer could have an arrangement to allow the employees to submit Form TP1 in June or July and another form in November. This would facilitate you to submit your details of the claim after the expenses have been incurred.
It is your obligation to retain the receipts for seven years to substantiate the claim and to facilitate a tax audit that may be conducted on you subsequently. You can be penalised for over-claiming your deductions.
> Does a fixed monthly income employee have the option to choose not to have MTD as “final tax”?
Yes, you have the option to choose not to have the MTD as “final tax”.
> Assuming my tax relief for last year (2013) adds up to RM400 for books and RM50 for sporting goods, how do I claim my relief of RM450 (i.e. RM400 + RM50)? Should I get my employer to deduct RM450 next month i.e. March or should this amount be pro-rated to RM45/month from March to December this year?
As an employee, you are only required to indicate the total amount you wish to claim in the form TP1. Your employer will do the necessary calculation of the MTD in accordance with the MTD rules issued by the IRB.
> If the taxpayer is paying the Premium for Medical Insurance on an annual basis, for example in November, can the taxpayer fill in the TP1 for the relief of RM3,000 in January or can they only do so in November?
The taxpayer may make a claim of RM3,000 (on the assumption that the total premium payable is RM3,000 or more) in the form TP1 in the month of January even though the actual payment is only incurred in November of the same year. This is on the basis that the taxpayer will continue to maintain the insurance policy throughout the year and there is no change on the premium amount.
> For the above example, if the taxpayer is paying the premium on a monthly basis, what would be the method of filling TP1?
The taxpayer may adopt the method as mentioned above. However, you have to ensure that you continue to maintain your insurance policy and pay the insurance premium on time.
> If the relief is claimed towards the year end, wouldn’t the taxpayer be overtaxed for the initial months of the year?
This would be dependent on the level of taxable income of the taxpayer. Such a situation could happen if the amount of additional reliefs claimable is huge and only taken into account towards the end of the year.
> I was only employed six months ago, am single and I have not paid any income tax yet as my salary is less than RM2,500. As for this MTD as “final tax”, how would this be beneficial to me?
On the basis that your income is below the income tax threshold, you would not be subject to income tax. It follows that your employer would not deduct MTD from your remuneration.