Malaysia – 2015 Budget Offers Taxpayers Lower Rates, Easier Compliance

Malaysia – 2015 Budget Offers Taxpayers Lower Rat...

On October 10, Malaysia’s 2015 budget was presented, which includes modifications to the monthly tax deduction, lower tax rates, and new penalties for tax payment and compliance offences.

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Flash Alert 2014-102

Malaysia’s 2015 Budget proposals feature a cut in individual income tax rates, offering some relief to taxpayers, and changes to the regime known as the monthly tax deduction, which should help ease taxpayers’ administrative burdens.  

Malaysia’s 2015 Budget proposals were presented by the country’s Prime Minister YAB Dato’ Sri Mohd Najib Tun Haji Abdul Razak on 10 October 2014.1

WHY THIS MATTERS

One of the key proposals in this year’s Budget is the reduction in the highest marginal tax rate for resident individuals and nonresident individuals, from 26 percent to 25 percent.  In addition, several of the Budget’s other tax proposals should help reduce tax burdens (administrative and financial), with the overall effect, potentially, of increasing individuals’ disposable incomes, although each individual’s tax status should be determined in light of his or her particular situation. 

Companies with international assignees may see a reduction in assignment-related costs.

International assignment cost projections and budgeting for assignments to Malaysia, and for assignees outside Malaysia still subject to Malaysia taxation, should reflect the changes described in this newsletter.  Where appropriate, adjustments by payroll administrators to withholdings should also be made.

Some of the tax measures that affect individuals – including those on international assignment – and their employers are outlined below.  

Monthly Tax Deduction as Final Tax

As we reported in Flash International Executive Alert 2013-148 (11 November 2013) at the time of last year’s budget, employers currently are responsible to remit Monthly Tax Deduction (“MTD”) payments to the Malaysian Inland Revenue Board (“MIRB”) every month.  Employers make MTD payments through salary deductions after deducting for standard reliefs and additional reliefs as requested by the employees.  The same employees are required to submit tax returns to the MIRB on or before 30 April of the following year.  The submission of tax returns burdens the employees as the MTD remitted by the employer may be equivalent to the income tax payable by the employees.

To ease the burden and foster compliance for employees whose total income tax is equivalent to the total amount of MTD, it is proposed that with effect from 1 January 2015, such taxpayers no longer need to submit tax returns.  Hence, the amount of MTD remitted represents the final tax paid.

The proposal is only applicable to individuals:

  • who receive only employment income;
  • who are subject to MTD;
  • employed by the same employer in that year of assessment irrespective of the period of employment;
  • whose tax liabilities are not borne by the employer;
  • whose spouse did not elect for combined assessment.

Such individuals are deemed to have made an election not to submit a return if no returns are furnished by 30 April of the following year.  The MTD made would be deemed as tax payable for that year of assessment.  However, the Director General of the MIRB may raise assessment or additional assessment where it appears that additional income ought to have been charged.  The deemed final tax in that case will be disregarded.

KPMG NOTE

“Monthly Tax Deduction as Final Tax” was first introduced in the 2014 Budget as a method of easing taxpayers’ administrative burdens and fostering compliance, wherein employees who only receive employment income and are not provided with benefits-in-kind (“BIK”) and living accommodation, need not submit tax returns.  This means that the taxpayer’s total income tax is equivalent to the total amount of MTD.  Such employees are deemed to have made an election not to submit tax returns if the returns are not furnished by 30 April of the following year.

In the 2015 Budget proposals, the BIK in respect of the use or enjoyment of benefits provided by a person’s employer now appear to be included in the determination of MTD as final tax. 

It remains to be seen how the MIRB will monitor expatriates departing from Malaysia, if no returns are to be submitted, in the case where the total income tax is the amount of MTD remitted.

Reduction in Personal Tax Rates

It is proposed that with effect from 1 January 2015, the income tax rates for resident individuals will be reduced by between 1 and 3 percentage points. 

The comparison between the current and proposed individual income tax rates and thresholds is shown in the table in Appendix A at the end of this newsletter. 

Nonresident individuals’ income tax rate is reduced by 1 percent from 26 percent to 25 percent.  

KPMG NOTE

It is important to note that the reduction in tax rates is expected to provide some tax savings to individuals.  For example, for a taxpayer with an annual chargeable income of MYR 400,000 and above, the tax savings potentially would be MYR 7,200.

Tax Reliefs for Individuals Who Are Disabled or Seriously Ill

Tax Relief for Taxpayers with Disabled Children

With effect from 1 January 2015, the tax relief for each unmarried and disabled child of an individual taxpayer who is a tax resident, is increased from MYR 5,000 to MYR 6,000 to alleviate the cost of living.

Purchase of Supporting Equipment for Disabled individual

With effect from 1 January 2015, the tax relief for the purchase of any necessary basic supporting equipment by an individual taxpayer who is a tax resident and is disabled, for his own use or for the use of his spouse, child, or parent who is a disabled person, is increased from MYR 5,000 to MYR 6,000.  Basic supporting equipment includes haemodialysis machine, wheelchair, artificial limbs and hearing aids. 

Medical Expenses for Serious Illness

With effect from 1 January 2015, the tax relief for medical expenses incurred by an individual taxpayer who is a tax resident, for the treatment of serious disease for the taxpayer, or spouse or child is increased from MYR 5,000 to MYR 6,000.  Eligible expenses are for the medical treatment of serious diseases such as cancer, kidney failure, heart disease, acquired immune deficiency syndrome, Parkinson’s disease, and leukemia.

Increased Penalties for Various Offences (Several Relate to Expatriates and Travelers Taxable in Malaysia)

Under the proposed amendments of the Income Tax Act 1967 (“the Act”), the maximum penalty upon conviction shall be increased from MYR 2,000 to MYR 20,000 for inter alia the following offences:

  • Failure to furnish a return or give notice of chargeability;
  • Voluntarily leaving or attempting to leave Malaysia without payment of tax;
  • An employer that fails to discharge various tax obligations, such as failing to comply with the:

a. notification of commencement of employment to the MIRB;

b. notification of cessation of employment to the MIRB;

c. notification of an employee leaving Malaysia for more than three months;

d. preparation of the Form E (employer’s return) and Form EA (statement of income) for each employee;

e. failure to withhold money in the employer’s possession in the case of an employee retiring from employment or leaving Malaysia for more than three months; and

f. failure to comply with the MTD of an individual.

The proposal is effective on the coming into operation of the Finance Act.

APPENDIX A

Chargeable Income (MYR)

Current

Proposed

Tax Savings

 Tax Rate

Tax Without Rebate

Tax liability

 Tax Rate

Tax Without Rebate

Tax liability


 


 

%

MYR

MYR

%

MYR

MYR

MYR

 %

1 - 5,000

0

0

 

0

0

 

 

 

 

 

0

0*

 

0

0*

-

-

5,001- 20,000

2

300

 

1

150

 

 

 

 

 

300

0*

 

150

0*

-

-

20,001 – 35,000

6

900

 

5

750

 

 

 

 

 

1,200

800*

 

900

500*

300

37.5

35,001 – 50,000

11

1,650

 

10

1,500

 

 

 

 

 

2,850

2,850

 

2,400

2,400

450

15.8

50,001 – 70,000

19

3,800

 

16

3,200

 

 

 

 

 

6,650

6,650

 

5,600

5,600

1,050

15.8

70,001 – 100,000

24

7,200

 

21

6,300

 

 

 

 

 

13,850

13,850

 

11,900

11,900

1,950

14.1

100,001 – 250,000

26

39,000

 

24

36,000

 

 

 

 

 

52,850

52,850

 

47,900

47,900

4,950

9.4

250,001 – 400,000

26

39,000

 

24.5

36,750

 

 

 

 

 

91,850

91,850

 

84,650

84,650

7,200

7.8

Exceeding 400,000

26

 

 

25

 

 

 

 

* after personal tax rebate of MYR 400 for chargeable income up to MYR 35,000. 

FOOTNOTE

1  The Budget speech and related budget documents (in Malaysian) can be found on the “Bajet 2015” webpage on the website for Malaysia’s Ministry of Finance.

Also, see: http://www.treasury.gov.my/pdf/bajet/ucapan/ub15.pdf.

MYR 1 = EUR 0.24

MYR 1 = USD 0.30

MYR 1 = GBP 0.191

MYR 1 = JPY 34.76

MYR 1 = AUD 0.343 

CONTACTS

For further information, please contact your local Global Mobility Services or People Services practice professional or the following professional with the KPMG International member firm in Malaysia:

 

Datin Pauline Tam

Tel. +60 (3) 7721 7017

The information contained in this newsletter was submitted by the KPMG International member firm in Malaysia.

© 2016 KPMG Tax Services Sdn Bhd., a company incorporated under the Malaysian Companies Act 1965 and a member of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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