Time of the year: People filing their income tax returns at an Inland Revenue Board office in Shah Alam. Many taxpayers will be filing the Form BE (for tax residents who do not carry on business and earn only employment income essentially), which has a deadline of April 30.
TAX season is here again!
This can certainly be a challenging time for many Malaysians – particularly for taxpayers that that are filing their tax returns for the first time – as well as employers and human resource (HR) managers who are generating EA forms for their employees.
But as Benjamin Franklin said, there are only two certainties in life: death and taxes, so we certainly need to get a handle on it.
With that in mind, here are some of the important things to bear in mind during the tax season in Malaysia.
The first thing to determine of course is whether the individual needs to register as a taxpayer, and if yes, he would need to register for e-Filing (the online income tax filing platform).
According to the Inland Revenue Board (LHDN), a Malaysian individual must register a tax file if the person has income of RM34,000 (after Employees Provident Fund deduction) from all sources, including but not limited to salary.
When do individual taxpayers need to file tax returns in 2023 (for the year of assessment or YA 2022)?
The answer depends on the type of tax form that is being filed – which is determined by whether the taxpayer is a salaried employee, or someone who carries on a business, whether he is a tax resident/non-resident, and a number of other categories.
Many taxpayers would be filing the Form BE (for tax residents who do not carry on business and earn only employment income essentially), which has a deadline of April 30, 2023.
There is a grace period of 15 days for submission via e-Filing, which effectively means that the final deadline for Form BE submissions is May 15, 2023.
What about individuals carrying on business?
A resident individual running a business will need to submit the Form B (or Form e-B for e-Filing).
Individuals that are earning employment income as well as carrying on business would also be filing the Form B.
The deadline to submit the Form B for the YA 2022 is June 30, 2023, with the deadline for e-Filing submissions being July 15, 2023.
As for employers, they must issue EA forms to their present and former employees who worked for them during the year of assessment by Feb 28 of the following year.
This means that for YA 2022, employees should have already received their EA forms from their employers by Feb 28, 2023.
If an individual has worked for more than one employer over the course of 2022, he should reach out to the HR department of the previous employer for a separate EA form.
For all Malaysian businesses, whether you are a large, medium or small company or enterprise, it is crucial to submit the Form E to the IRB via e-filing by 30 April 2023.
Failure to submit the form on time could result in a penalty of RM200 to RM2,000, imprisonment for up to six months, or both.
For employed individuals, in addition to salaries, there might be other benefits or perks that they receive as part of their employment income.
Are such benefits taxable in Malaysia?
This isn’t such a straightforward answer, as it depends on the type of benefits – as well as exemptions available.
In short, there are two types of benefits:
> Benefits-in-kind (benefits that are not convertible into money)
> Perquisites from employment (in cash, or convertible into money)
Both categories are technically taxable, although there are exemptions such as petrol and medical benefits. These exemptions, however, do not apply if the employee in question is a director, or an employee who has “control over his employer” via the holding of shares.
For most taxpayers, the immediate priority during the tax season would be to start looking for information on all the tax reliefs, deductions, and rebates that are claimable so that they would pay less tax.
It is worth highlighting that tax reliefs, deductions and rebates are actually three different “tools” meant to help you reduce your aggregate income, chargeable income, and amount of tax charged, respectively – ultimately letting you enjoy a lower tax rate and pay less in tax altogether.
It is important for taxpayers to avoid being overzealous in making these claims, and only make claims that are relevant as LHDN would typically request for receipts or proof of payment (where applicable) for tax reliefs claimed.
There have been instances where taxpayers have claimed every single tax relief available, possibly because of a lack of understanding of the eligibility criteria.
This normally results in the much dreaded query letter from LHDN arriving in the mail or email.
It is hoped that the various tax reliefs that are currently available, which are rather confusing and are attached with complex conditions can be simplified and streamlined so that the filling up of tax returns and the claiming of such reliefs would be less onerous.
Harvindar Singh is a council member of the Chartered Tax Institute of Malaysia and a partner at Harvey and Associates. The views expressed here are the writer’s own.
