Malaysia – Budget 2016 Taxes High Earners More, Relief for Low-to-Middle Incomes

Malaysia – Budget 2016 Taxes High Earners More, Relief

This GMS Flash Alert reports that Malaysia’s 2016 Budget proposals offer some relief to lower- and middle-income taxpayers, but increases the tax rate for higher-income individuals.

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Malaysia’s 2016 Budget proposals offer some relief to lower- and middle-income taxpayers, but increases the tax rate for higher-income individuals. 

The 2016 Budget proposals were presented by the country’s Prime Minister YAB Dato’ Sri Mohd Najib Tun Haji Abdul Razak on 23 October 2015.1

WHY THIS MATTERS

One of the key proposals in this year’s Budget is the increase in personal income tax rates for two chargeable income brackets (as set out below), from 25 percent to 26 percent and from 25 percent to 28 percent.  In addition, reliefs were increased to benefit lower-to-middle-income earners, with the overall effect of increasing their disposable income; although each individual’s tax status should be determined in light of his or her particular situation.

Companies with high net-worth international assignees are likely to see an increase in their assignment-related costs. 

In cases of assignments to Malaysia where assignees are subject to Malaysian taxation, and for assignees working outside Malaysia but still subject to Malaysian taxation, international assignment cost projections and budgeting should reflect the changes described in this newsletter once they come into effect.  Where appropriate, adjustments to gross-up packages and withholding taxes need to be considered.

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

Increase in Personal Income Tax Rates for High Income Earners

The government has proposed that the marginal tax rate for tax-resident individuals for the MYR 600,001 to MYR 1,000,000 chargeable income bracket will be increased from 25 percent to 26 percent.  For the chargeable income bracket exceeding MYR 1,000,000, the income tax rate is increased by 3 percentage points from 25 percent to 28 percent.  Income tax rates for tax resident individuals for the chargeable income bands below MYR 600,000, remain unchanged.

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

The nonresident individuals’ fixed income tax rate is increased by 3 percentage points from 25 percent to 28 percent. 

These measures are planned to be effective from 1 January 2016.

KPMG NOTE

Tax residency is based on physical presence.  In view of the higher tax liability if the individual is assessed as a nonresident, due consideration should be given to his pattern of stay in Malaysia.  The possibility exists of a reduced tax liability if the taxpayer could qualify as a tax resident in a calendar year.

For example, for a taxpayer with annual total income of MYR 1,000,000, the estimated tax liability for a resident individual would be MYR 236,000, while the estimated tax liability for a nonresident individual would be MYR 280,000. Thus, the potential estimated  tax savings would be MYR 44,000, if he could qualify as a tax resident in a calendar year.

Tax Relief for Taxpayers with Non-Working Spouse and/or Pays Alimony to Former Wife

An individual resident taxpayer whose spouse has no income and/or pays alimony to his or her former spouse is entitled to tax relief, available as a tax deduction.  The government is proposing to raise the deductible amount from MYR 3,000 to MYR 4,000.

This is planned to be effective from 1 January 2016.

Tax Relief for Parental Care

The government is proposing to help individuals undertaking care of elderly and/or infirm parents by means of a new tax relief:

  • MYR 1,500 for a mother; and 
  • MYR 1,500 for a father.

The relief will be available as a tax deduction for individual resident taxpayers caring for their qualifying parents.  This relief can be shared with other siblings provided that the total relief claimed does not exceed MYR 1,500 for a mother and MYR 1,500 for a father.  

To claim this relief, the taxpayer must satisfy all the following conditions:

  • The taxpayer does not claim expenses related to the medical treatment and care of parents. 
  • The parents are the legitimate natural parents and foster parents in accordance with the law (subject to a maximum of two persons). 
  • The parents are aged 60 years and above.
  • The parents are tax residents in Malaysia in the current year of assessment. 
  • The parents have an annual income not exceeding MYR 24,000 per annum for each parent.

This is planned to be effective from 1 January 2016 to 31 December 2020. 

Tax Relief for Children Below 18 Years of Age

To alleviate the cost of bringing up children, the tax relief, available as a deduction, for each unmarried child of an individual resident taxpayer is proposed to be increased from MYR 1,000 to MYR 2,000.

This is planned to be effective from 1 January 2016.  

Tax Relief for Children Studying At Tertiary Level

To help ease the financial burden on parents with children in tertiary education, the government is proposing to increase the tax relief, available as a deduction, from MYR 6,000 to MYR 8,000, for an individual taxpayer who is a tax resident.  The tax relief is available to the taxpayer for each unmarried child over 18 years old receiving full-time education at diploma level and above at a recognized institution of higher learning in Malaysia or at degree level and above at a recognized institution of higher learning outside Malaysia. The course undertaken and the institution must be approved by the Public Service Department of Malaysia.  

For an unmarried disabled child, there is an existing relief of MYR 6,000, available as a tax deduction.  Said child must be certified by the Department of Social Welfare as a disabled person.  Therefore, the taxpayer is eligible to claim relief of MYR 14,000 for each of his unmarried and disabled children.

This is planned to be effective from 1 January 2016.  

Tax Relief on Fees for Tertiary Education

The government is proposing to increase the tax relief, available as a tax deduction, from MYR 5,000 to MYR 7,000, per year for study fees incurred by an individual taxpayer who is a tax resident pursuing any course of study up to tertiary level in selected fields of study, or Master or Doctorate level in any field, at any institution or professional body in Malaysia recognized by the government or approved by the Minister of Finance.  The aim of this measure is to encourage life-long learning and to support the growth of Malaysia’s word-class talent. 

This is planned to be effective from 1 January 2016. 

Tax Relief on Employees’ Contributions to Social Protection Scheme

It is compulsory for Malaysian citizen employees to register and contribute to the Social Security Organisation (SOCSO) if their starting salary upon commencement of their first employment is MYR 3,000 or less (this threshold will be increased to MYR 4,000 as announced in the Budget (effective date yet to be announced)).  

Currently, there is no tax relief for contributions made by employees to the SOCSO.  

The government is proposing to introduce a new relief up to a maximum of MYR 250 per year available as a tax deduction. 

This is planned to be effective from 1 January 2016. 

Appendix A

* The yellow-shaded rows represent the taxpayer’s liability in this bracket after personal tax rebate of MYR 400 for chargeable income up to MYR 35,000.

FOOTNOTE

1   The Budget speech and related budget documents can be found on the “Bajet 2016” Web page on the Web site for Malaysia’s Ministry of Finance. 

 

Also, see:  http://www.treasury.gov.my/pdf/bajet/ucapan/ub16.pdf.

 

For coverage of last year’s budget, see Flash International Executive Alert 2014-102 (14 November 2014).

 

MYR 1 = EUR 0.213

MYR 1 = USD 0.2286

MYR 1 = GBP 0.152

EUR 1 = AUD 0.324

 

CONTACTS

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

 

Datin Pauline Tam

tel. +60 (3) 7721 7017

pohlintam@kpmg.com.my

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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