Thursday, April 2, 2009

Malaysian Income Tax - Do You Need To File Yours?

April will be a busy month for Malaysian tax payers. It is the month where Malaysian tax payers file their personal income tax to Inland Revenue Board (IRB) or Lembaga Hasil Dalam Negeri (LHDN). The due date is on 30th April. I believe there are still a lot of us who are unsure whether we need to file our income tax to IRB or not. Why I said so? Because I still have people around me asking whether they need to file their income tax or not. Also, I heard from local radio stations, there are still people who called in and asked what is the salary range to file the income tax. From Internet, there are also still questions on whether they are liable to file their income tax or not. And not forgetting, I am one of them who used to think that your salary must reach certain level before you need to file your income tax :p

I got the answer after I went to the local IRB office. The IRB officer said that 'By right, we all must file our income tax despite of the income level'. No such thing such as you only file your income tax when your salary reach RM2500 per month. Also, I got more information from IRB website and The Malaysian Government's Official Portal. The details below which extracted from The Malaysian Government's Official Portal is clear enough to explain whether you need to file your income tax or not.

All individuals are liable to pay tax on income accrued in, derived from or remitted to Malaysia. Sources of income which can be taxed includes gains and profits from trade, profession and business, salaries, remunerations, gains and profits from an employment, dividends, interests or discounts, rents, royalties or premiums, pensions, annuities or other periodic payments and other gains or profits of an income nature not mentioned above.

Taxable income is arrived at after adjusting for expenses incurred wholly and exclusively in the production of the income. The rate of tax depends on the resident status of the individual which is determined by the duration of his stay in the country (as stipulated under Section 7 in the Income Tax Act 1967). A resident individual is taxed on his chargeable income at graduated rates from 2% to 30% after the deduction of tax relief.

However, an individual with chargeable income of less than RM2,500 is not taxed. The chargeable income of an individual resident is arrived at by deducting from his or her total income the personal relief. Tax liability of a resident individual is reduced by rebates. Income tax matters in Malaysia are under the jurisdiction of Inland Revenue Board of Malaysia.

Perhaps you are confused by the words "However, an individual with chargeable income of less than RM2,500 is not taxed". The actual meaning of chargeable income or taxable income is your total annual income minus your personal relief and some other expenses approved by IRB. Let's take a simple example, Ali, a new graduate who earned RM24000 for 2008. His taxable income is RM24000 - RM8000 (personal relief) - RM2640* (EPF @ RM24000 x 11%) = RM13360. The taxable income is RM13360. Of course this simple calculation is taking into considerations that Ali does not has other personal relief. If after minus of the deductible, the balance is less than RM2500, then he is not taxed. For more details on personal relief for Resident Individual (for year 2008), you can click here. Please refer to part D.

So if you are a Malaysian, staying in Malaysia and have income, you are liable to file your income tax.
*There might be slight differences. Please refer to your EA form for the actual EPF employee contribution.

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