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7 Things to Know about Income Tax Payments in Malaysia

Have you been earning income in Malaysia? If you have, you are required to declare your income and make your income tax payments to the Inland Revenue Board (IRB) of Malaysia.
person doing his income tax payments in malaysia

With that being said, I find that different individuals would have their taxes assessed differently and as a result, will have different methods of income tax filing and payments.

The question is: ‘How do you do it correctly?’

In this article, I’ll cover 7 basic things that you need to know to correctly submit your income tax filing and to estimate the amount of taxes to pay.
They are:

1. Tax Residency

Are you a tax resident of Malaysia?

If you are a Malaysian citizen, it is easy to assume that you are ‘automatically’ a tax resident of Malaysia. Likewise, if you are a foreigner, you may think that you are not a tax resident of Malaysia. That is not true.

Your tax residency is not defined according to your citizenship.

For instance, you are a Malaysian who has been working in Singapore for, let us say, 10 years. You could be a tax resident of Singapore, but not Malaysia. This is applicable to a Singaporean or a foreigner who is working in Malaysia. He could be a tax resident of Malaysia regardless of his nationality.

Instead, tax residency is determined based on the number of days that you had been physically present in Malaysia. For more details, you may read this article: When Are You a Tax Resident in Malaysia?

If you are not a tax resident of Malaysia, you would need to submit the M form to declare your income to the IRB.

2. Sources of Income

If you are a tax resident of Malaysia, the next question would be: ‘What are the sources of your income in Malaysia?’.

In Malaysia, the sources of income which are chargeable for income tax include income earned from your business, employment, interests, dividends, royalties, premiums, pensions, discounts, and annuities.

But, the distinction lies in whether or not you have business income in Malaysia presently. If you have business income, you would be required to submit B form to declare your income. Otherwise, you would submit BE form to the IRB.

3. Submission Deadline

If you do not have business income, the due date to submit your tax filing, be it BE form or M form, is on the 30th April for each year.

However, if you have a business income, the due date to file in your income tax, be it B form or M form, is on the 30th June for each year.

If you fail to pay income tax on or before the respective due dates, you’ll incur a tax penalty of 10% under subsection 103(3) of the Income Tax Act (ITA) 1967. If you fail to pay income tax within 60 days after the respective due dates, there’ll be an additional 5% tax penalty imposed on top of your tax payments.

It is advisable to settle your income tax payments before the due dates to avoid the risk of being penalised.

4. Income Tax Rates

If you are not a tax resident, the amount of income tax is calculated based on a flat rate of 28% of your chargeable income.

If you are a tax resident, the amount of income tax is calculated based on a tier rate where the maximum tax bracket for Year Assessment (YA) 2018 is 28%. The current income tax bracket is provided by the IRB.

Hence, a tax resident of Malaysia pays less income tax than a non-resident.

For instance, we have two individuals: John and Jack. Both of them had made a total of RM 100,000 in chargeable income in YA 2018. John is a tax resident but Jack is not. John would be paying RM 10,900 in income tax. On the other hand, Jack would be paying RM 28,000 in income tax which is RM 17,100 higher than how much John would be paying.

Their income tax calculations are as follows:

John’s Income Tax Payments
Chargeable Income Income Tax (RM)
First RM 5,000 @ 0% 0
RM 5,001 – RM 20,000 @ 1% 150
RM 20,001 – RM 35,000 @ 3% 450
RM 35,001 – RM 50,000 @ 8% 1200
RM 50,001 – RM 70,000 @ 14% 2,800
RM 70,001 – RM 100,000 @ 21% 6,300
John’s Income Tax Payments = RM 0 + RM 150 + RM 450 + RM 1,200 + RM 2,800 + RM 6,300 = RM 10,900
Jack’s Income Tax Payment
Jack’s Income Tax Payments = RM 100,000 x 28% = RM 28,000

5. Income Tax Reliefs

If you are not a tax resident, you would not enjoy income tax reliefs. Hence, the amount of total income earned would be your chargeable income, which would be used to compute your final income tax payment at a flat rate of 28%.

If you are a tax resident, you would be entitled to enjoy income tax reliefs. They are deductible expenses which could be utilised to reduce your final chargeable income from your total income earned, thus, paying fewer taxes. The entire list of income tax reliefs are provided by the IRB.

For instance, we have two individuals: Chong and Caleb. Chong is a tax resident while Caleb is not. Both of them earned a total income of RM 100,000. Chong is able to claim the following tax reliefs:

Tax Reliefs YA 2018 Amount (RM)
Personal Relief 9,000
Parents’ Relief 3,000
Purchase of MacBook Air (It Costs RM 4,500) 2,500 (limited to RM 2,500)
Life Insurance and EPF 6000
Medical Insurance 1500
Ordinary Child Relief for His Son 2,000
RM 70,001 – RM 100,000 @ 21% 6,300
Total Reliefs 24,000

As a result, Chong was able to lower its chargeable income to RM 76,000 after having claimed RM 24,000 in income tax reliefs. Hence, he would pay a total of RM 5,860 in income tax.

Caleb, on the other hand, could not claim such reliefs. Therefore, Caleb would declare RM 100,000 in chargeable income and pay RM 28,000 in income tax. It is significantly more than how much Chong is paying despite earning the same amount of total income.

Their income tax calculations are as follows:

Chong’s Income Tax Payments
Chargeable Income Income Tax (RM)
First RM 5,000 @ 0% 0
RM 5,001 – RM 20,000 @ 1% 150
RM 20,001 – RM 35,000 @ 3% 450
RM 35,001 – RM 50,000 @ 8% 1200
RM 50,001 – RM 70,000 @ 14% 2,800
RM 70,001 – RM 100,000 @ 21% 1,260
Chong’s Income Tax Payments = RM 0 + RM 150 + RM 450 + RM 1,200 + RM 2,800 + RM 1,260 = RM 5,860
Jack’s Income Tax Payment
Caleb’s Income Tax Payment = RM 100,000 x 28% = RM 28,000

6. Payment Methods

You can make income tax payments through:

  • Cash, Cheque, and Instructions to Debit Account at IRB’s Appointed Agents*
  • Internet Banking
  • Auto Teller Machine (ATM) of Maybank, Public Bank, and CIMB.
  • Telebanking: Maybank’s Kawanku Phone Banking (1-300-88-6688)
  • Cheque Deposit Machine of Public Bank
  • Cash Deposit Machine of CIMB

The following is the list of IRB’s Appointed Agents:

  • Maybank
  • Public Bank
  • CIMB
  • RHB Bank
  • Affin Bank
  • Bank Rakyat
  • Bank Simpanan Nasional
  • POS Malaysia

It is important to take note of the payment code & its installment number. You may check out Note 5(b) of the image below:

Both payment code and installment numbers are stated in the income tax form / e-filing. It is important to insert them correctly when making your tax payments through offline means or online.

7. Tax Agent

Perhaps, you prefer to engage the services of a tax agent to help you file in your income tax. They are helpful and are worth your investment, especially if you’re a go-getter or your current financial situation is more complicated.

You could use Joolah.my to search for your preferred tax accountant/tax agent to serve your needs. Here, the question: ‘How do you know whether or not the tax agent is licensed under subsection 153(3) ITA 1967?’

The answer – You can do a simple search at myCukai, to find out the tax agent’s current status and their license expiration. Under subsection 153(3) ITA 1967, a qualified tax agent would be granted a three-year license to conduct tax and its related services in Malaysia. This license needs to be renewed 4 months before its expiry.

The bottom line is – If you need the services of a tax agent, get a licensed one.

Conclusion:

The above are starter guides that allows you to better understanding income tax payments in Malaysia. There is more to be discussed in the subject of tax.

Perhaps, you are exploring possible methods to save on tax payments or enjoy tax benefits legally and thus, needing professional tax advice. If that is you, you may use the form displayed earlier on this page or our home page. We provide you easy access to tax agents by quickly referring you to experts that provide accounting and legal services in Malaysia.