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Introduction to Malaysian Personal Income Tax

by | Jan 20, 2021 | Business, Featured, Law

What is Income Tax?

Income tax is a type of tax that the government collects from the eligible taxpayer. The tax collected is used to pay public facilities such as highways, health programs and education strategies in order to raise the quality of life of the citizens. When a person starts earning a certain level of income, then it is time to contribute back to the country that they are living. The income does not only include the salary but also all sources of income such as rental income, business income, commissions, pensions etc. The tax rate and chargeable income differs to the level of income you earn.

Who should pay the Income Tax?

Any individual earning more than RM34,000 a year or roughly more that RM2,833 a month after EPF deductions has to register a tax file to pay. This is regulated by the Inland Revenue Board (IRB) of Malaysia, also known as Lembaga Hasil Dalam Negeri (LHDN).

How to register a tax file?

If this is your first time to pay income tax, you need to register first as a taxpayer. Registration can be made by online registration here or at the nearest LHDN branch. All you need is to prepare 3 documents which are a copy of the latest Salary Statement or Salary Slip (EA or EC Form), a copy of IC or police IC or army IC or international passport and a copy of marriage certificate (if applicable). Please note that EA Form is a Statement of Remuneration from Employment from Private Sector while EC Form is a Statement of Remuneration from Employment from Public Sector.

Secondly, you need to have a one-time pin number in order to log in to ezHASiL for the first time. To obtain the pin number, you can apply it online here or go to the nearest LHDN office. The documents required are Form CP55D and a copy of the IC or passport of the applicant.

Once you have obtained the pin number and successfully logged into ezHASiL, click on e-Borang under e-Filing section. Then, you need to choose the right income tax form and the assessment year. The form that you need to choose would be form e-BE for individuals without business, form e-B/e-BT for individuals with business or form e-M/e-MT for non-resident individuals or knowledge workers.

After that, all you need to do is to fill in all your particular details, income details and whether you have any tax reliefs, tax rebates and tax exemptions. You can check the list of deductions here. Do not forget to save and print all the forms as you are required to keep sufficient records for a period of seven years under section 82(1)(a) of the Income Tax Act (ITA) 1967.

How to pay Income Tax?

The easiest and most convenient way would be through online. You can use LHDN’s own online platform ByrHASIL or online banking. Among appointed agent banks are CIMB Clicks, HLB Online, Maybank2u, MyBSN, Public Bank eBank, & RHB Online.

If you prefer to do it physically, you may also pay at Pos Malaysia outlets. Here, only cash payment is accepted. Please ensure that the Payment Code, Name of Taxpayer, Income Tax Number, Identity number, Year of assessment & Payment amount are included in the payment slip.

Another way is you can go at selected bank counters throughout Malaysia such as CIMB Bank, Public Bank, Maybank, Affin Bank, Bank Rakyat, RHB Bank, Bank Simpanan Nasional. The payment can be made by cash, cheque, or instruction to debit account.

Due date to pay income tax may vary depending on the category. For individuals without business, the payment must be made by 30th April and for individuals with business, the payment shall be made by 30th June every year. Failure to pay within stipulated date will cause you a penalty. 10% will be imposed on the balance of your unpaid tax and if the tax and penalty is not paid within 60 days, a further penalty of 5% will be imposed on the amount owed. This penalty is provided under Section 103 of the ITA 1967. Read more about penalties, fines and offences here.

What happens if you get a late payment penalty? Do not be afraid as you can appeal in writing to the Collection Unit of LHDN within 30 days of being issued a Notice of Increased Assessment. Bear in mind that even if you appeal on the penalty, you still have to settle the penalty imposed on you. Only when your appeal is successful then you will get a refund from LHDN.

What is the service of Notice of Assessment?

Usually, most taxpayers should receive the tax bill or notice of assessment after filling your tax with LHDN. Such notice can be served to you by way of personal service or registered post. You are said to receive the notice of assessment if such notice has been served to you within the usual and normal course of post. The notice is also deemed to have been served even if you refused to accept the delivery of the notice. In other words, you cannot argue that you did not receive notice of assessment in such situations.

How to appeal on Notice of Assessment?

If you disagree with an assessment that has been made by LHDN, you have the right to appeal. The appeal must be made in writing within 30 days from the date of notice to the LHDN branch which issued your income tax file. You should fill in Form Q and stating the type of mistakes and clearly specify them. You should submit 4 copies of Form Q and have to make sure that at least one copy is an original Form Q whereas 3 may be photocopies.

The appeal against an assessment should state the grounds of appeal. The review of the assessment could not be carried out if you failed to specify your reasons for the appeal. Reasons such as the tax is excessive or the tax is not computed in accordance with the ITA 1967 will be regarded as vague or lacking in details as they provide no assistance in reviewing the assessment.

Download all your relevant forms here.

Nur Amira Izzati binti Mohamed Azmi Pupil in Chambers Messrs Amir Khusyairi & Associates

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