To file or not to file a personal tax return?


Under Budget 2014, taxpayers who are employed may no longer need to file their personal tax returns from the year of assessment 2014 onwards.

Under Budget 2014, taxpayers who are employed may no longer need to file their personal tax returns from the year of assessment 2014 onwards.

TYPICALLY, there would be a last-minute rush on April 30 every year as individual taxpayers hurry to file their personal tax returns by the deadline.

Under Budget 2014, taxpayers who are employed may no longer need to file their personal tax returns from the year of assessment 2014 onwards.

Currently, employers are required to make Monthly Tax Deductions (MTDs) from their employees’ employment income and to remit them to the Inland Revenue Board (IRB). The MTDs take into account various reliefs such as personal relief, spouse relief, child relief, EPF contributions and zakat payments through salary deductions.

Employees may request their employers to take into account other reliefs eg medical insurance, purchase of reading materials, etc so that the MTDs are equal to the total final tax payable, by completing a prescribed form.

Under the budget proposal, employees whose total income tax payable is equal to the amount of MTDs made by their employers no longer need to submit personal tax returns. However, this option is only available to the following:

· Employees with only employment income

·Employees whose MTDs are made under the Income Tax (Deduction from Remuneration) Rules 1994, and

·Employees serving under the same employer during a calendar year

Individuals who do not qualify for non-filing of personal tax returns include employees who change employers during the year and individuals who have non-employment income such as business income, rental income, etc during the year.

Individuals can opt to file personal tax returns if they have additional tax reliefs which have not been accounted for in their MTDs.

It would not be beneficial for foreigners working for employers with Operational Headquarters/Regional Office/Regional Distribution Centre/ International Procurement Centre status to opt for non-filing of personal tax returns as they are able to claim tax exemption on income derived from their employment outside Malaysia.

Whilst the implementation of MTD as final tax may bring cheer to employees, it could lead to increased administrative burden for employers.

Employers responsible for taking into account additional reliefs claimed by their employees when computing the MTDs have to ensure that the information is accurate. The questions that arise are who will be responsible for penalties for errors and who will keep track to ensure the MTDs are accurate?

Employers currently deducting MTDs on cash remuneration only will also need to configure their payroll system to compute the MTDs on benefits-in-kind as well.

The decision to file or not to file a personal tax return is dependent on each individual’s personal tax situation. Individuals should prepare a tax computation to ascertain their tax positions so that they can decide whether it would be beneficial to file a personal tax return, especially if they are in a tax refund position.

Furthermore, it is not yet known whether the IRB will require individuals who seek not to file their tax returns to notify the IRB of their non-filing intention, eg through a letter or a prescribed notification form.

Tan Lay Keng is partner and Stefanie Lee is manager of Ernst & Young Tax Consultants Sdn Bhd. The views expressed above are the personal views of the authors and do not necessarily represent the views of Ernst & Young.

Ernst Young