By Annie Wong
Starting 2 January 2022, even zero-income full-time students in Malaysia are required to file their tax returns with the Inland Revenue Board of Malaysia (IRBM). The question arises: How many of us are still unaware of these changes?
In the ever-evolving economic landscape, staying informed about recent changes that impact our financial lives is crucial. Within this dynamic field of taxation, subject to constant change, it is essential to equip ourselves with effective tax planning strategies.
Despite being Malaysian citizens, not everyone is aware of their tax obligations. For instance, according to Act 8331, Finance Act 2021, a new section 66A (1)(c) mandates that any citizen aged eighteen and above must have a Tax Identification Number (TIN).
As of 1 January 2022, even if Malaysians are 18 years old with no income, they are required to report ‘0’ in their BE form. While 7.8 million TINs were automatically generated for eligible citizens, many still believe that being a full-time student with no income exempts them from filing tax returns.
During the Tax Forum 2023, Abang Ehsan Abang Abu Bakar from the Tax Compliance Department of LHDN suggested that eligible citizens, especially new taxpayers, should complete their tax return filing before 31 May 2024. The IRBM has introduced a Special Voluntary Disclosure Programme 2.0 from 6 June 2023 to 3 May 2024, allowing new taxpayers to file tax returns for YA 2022 and earlier without penalties.
Consider a working adult earning less than RM30,000. Should they fill out a tax filing? Yes, they should. While it wasn’t necessary previously due to their chargeable income being non-taxable, the amendment, effective 1 January 2022 mandates all citizens aged 18 and older to report and submit their tax filings.
Why does a full-time student with no income need to report now? IRBM cannot distinguish between zero earnings and substantial income unless it is reported. According to an EY report in November 20222, Malaysia’s shadow economy accounted for 18% of GDP in 2019, approximately RM250 billion. The shadow economy comprises underreported business income, non-registered businesses and illicit activities. Deputy Finance Minister Ahmad Maslan mentioned in an interview on 17 October 2023, that TIN and e-invoicing are expected to shrink Malaysia’s shadow economy. Now we understand; it is part of the government’s strategy to tackle the shadow economy!
Strategic Tax-Saving Tips
To legally save on taxes, engaging in proper tax planning at the beginning of the year is essential. One key strategy involves maximising deductions through available tax relief, charitable contributions and tax-exempt investments. Here are some tips categorised into four groups:
General Tax Relief: According to the Budget 2024 proposal, several beneficial tax reliefs have been added. For instance, expenses incurred for dental and medical check-ups for yourself, your spouse, parents and children are claimable up to RM1,000. Participating in up-skilling courses and retaining the receipt from the organiser can result in a claim of up to RM2,500. Contributions to the Private Retirement Scheme (PRS) offer tax relief up to RM3,000 until YA 2025.
Additionally, optimising the use of tax-advantaged accounts, such as the Employees Provident Fund (EPF), is crucial. The voluntary contribution initiative of EPF, i-Saraan3, allows self-employed members and gig economy employees to contribute up to RM100,000 per annum, with a special incentive of 15% for the total contribution, up to a maximum of RM500 for the current year. Combining approved scheme contribution relief and voluntary contribution/life insurance relief can result in a maximum tax relief of RM7,000.
Employee Perquisites: Employees working for a business entity can negotiate a better remuneration package with allowances, benefits-in-kind and perquisites. For example, Joshua, a general manager with over 15 years of experience in a pharmaceutical company, proposed to his boss a daily meal allowance and a travel allowance of RM6,000 per annum, respectively. All these allowances are tax-exempted perquisites, and Joshua doesn’t need to pay a single cent in tax for these benefits. Additionally, Joshua requested a company car.
Let’s assume the company provides him with a car valued at RM180,0004; his additional taxable income is only RM8,800. After deducting all personal tax reliefs, if Joshua’s tax bracket is 25%, he only needs to pay RM2,200 (RM 8,800 x 25%) per year to enjoy a luxury car with a driver every day. A long-service award is given by the company, and the first RM2,000 is tax-exempted as well. So, if you are a long-service employee, why not consider requesting a substantial award from the company?
Benefits for Married Employees: Employees who are married with children can explore opportunities for additional benefits. Children’s allowance perquisites were raised from RM2,400 to RM3,000 during the Budget 2024 proposal. Parents with children under 6 years old can claim up to RM3,000 per household by sending them to a JKM-registered kindergarten. Saving RM8,000 into Skim Simpanan Pendidikan Nasional (SSPN) is eligible for each parent until YA 2024.
Business Owners (LLP or Sdn Bhd): Business owners, particularly those in the Small and Medium Enterprise category, can strategically repackage remuneration to maximise tax savings. Declaring dividends instead of drawing a high salary package or director fees can be a tax-efficient move, especially to keep the total annual chargeable income below RM 100,000 and benefit from lower tax brackets ranging from 15% to 24%.
These are some practical tips for optimising individual tax returns in 2024. Additionally, starting on 1 August 2024, the government will implement e-invoicing for companies with revenue exceeding RM100 million. This change is set to be a game-changer in the tax landscape. Moreover, it will become mandatory for all taxpayers, including SMEs, from 1 July 2025.
To learn more strategies for optimising tax returns, minimising liabilities and strategically timing financial transactions, proper tax planning is required. By understanding the taxation framework, one can take control of their financial destiny by making informed choices that align with their long-term goals. May this year be a great and prosperous one for most of us!
About the Writer
Annie Wong is a dedicated and accomplished trainer with over a decade of experience in training and SME business consulting. She holds a Bachelor of Science degree from Campbell University, graduating with Summa cum laude honours. Presently, Annie is globally recognised as a Certified Financial Planner (CFP CERT TM Professional) and a Certified Professional Trainer (CPT, IPMA, UK). She is licenced as a CMSRL Financial Planner by the Securities Commission Malaysia, and her expertise has positively impacted numerous individuals and businesses.
Sources
(1) Act 833, Financial Act 2021.
(2) Shadow Economy: www.freemalaysiatoday.com/category/highlight/2023/10/17/governments-grand-plan-to-tackle-shadow-economyClick here to enter text.
(3) i-saraan: www.kwsp.gov.my/en/member/contribution/i-saraan
(4) Benefits-in-kind: http://lampiran1.hasil.gov.my/pdf/pdfam/PR_11_2019.pdf
