Since January’09 i have to pay more income tax based on new income tax deduction schedule. I’m not worried much about deduction but the real life fact is where & how we’re getting the benefit from tax deduction? Since Mar’08 election, till now I don’t see anything is changed in Malaysia within the public offering. But i found an interesting article in TheStar.com.my which might help you guys to reduce income-tax deductions. But please consult with an IRD officer more details as it might have some hidden info’s.
APRIL 30 is D-day for all Malaysians to submit their income tax returns this year.
In fact, many taxpayers would have already started cracking their heads to find means and ways to minimise their tax liabilities, especially under the current economic climate.
Bank executive Tan Soon Hock, 33, is not looking forward to submitting his tax returns this year.
“Despite the additional tax exemptions proposed by the Government in Budget 2009 and the recent mini-budget, it looks like I still have to fork out quite a lot in taxes and this will definitely put a dent in my income,” he says.
Some of the proposed tax exemptions in Budget 2009 include tax exemption on allowances, benefits-in-kind and perquisites received from employers, such as fuel card/allowance or travel allowance between the home and workplace, allowance or fees for parking, meal allowance and allowance or subsidies for child care, among others.
The recently announced mini-budget also aims to ease the financial burden of the man-in-the-street by allowing house buyers to obtain tax relief of up to RM10,000 per annum for three years in respect of the interest costs incurred on loans used to finance the acquisition of residential homes and retrenched workers to defer repayment of their housing loans for one year.
The interest income relating to the housing loans for which repayment has been deferred for one year will not be taxable during the moratorium period.
However, the proposals in the mini-budget are to be effective only from year of assessment (YA) 2009.
Despite the additional tax reliefs and exemptions announced in Budget 2009 and the mini-budget, many believe more can be done to ease the rakyat’s financial burden, especially in the worsening economic slowdown.
PwC International Assignment Services Sdn Bhd senior executive director SJ Rani believes that apart from the existing tax reliefs and allowable deductions available to taxpayers, fiscal tax cuts should be focused on taxpayers in the lower and middle tax brackets to increase their net disposable income by reducing the burden on essentials, such as car and home loans, children’s education costs, food and clothing.
“Enhancing child and dependant relief will help to ease the burden of families, particularly single income families facing the growing costs of raising a family, caring for ageing parents and financing children’s higher education,” she says.
She points out that the present child relief for children below 18 years of age is RM1,000 per annum or about RM83 per month, which is insufficient as the cost of bringing up a child is definitely more than the amount of relief provided.
“Similarly, increased child relief of RM4,000 is provided for each child who is pursuing higher education in Malaysia. As all of us are aware, the cost of education has increased significantly, especially when scholarships are limited,” she says.
The Government may wish to consider providing reliefs to encourage individual taxpayers to make more energy conscious or energy efficient purchases, for example, hybrid vehicles and solar panels, Rani suggests.
She opines that tax relief for contributions to private pension funds should also be considered.
“The existing maximum relief applies only to contributions to approved funds, such as the Employees Provident Fund (EPF). Extending the reliefs to contributions made to private pension funds will provide alternative retirement savings options to taxpayers,” she adds.
To KPMG tax partner Pauline Tam, the Government can allow individuals who lost their jobs last year or in 2009 to pay their personal income tax for the 2008 or 2009 income in instalments, to ease their cash flow.
Tam: ‘Extending the reliefs to contributions made to private pension funds will provide alternative retirement savings options to taxpayers
The retrenched individuals may even be granted full tax exemptions for severance payments, she says.
Another suggestion will be to expand the income bracket or reduce the personal income tax rate.
No room to manoeuvre
Alan Chung, in-house tax manager for a listed company, says individuals do not have much room to play with when trying to reduce their tax bill.
“You can’t move much in there. In the end, it’s whether you are able to maximise the reliefs given to you in tax form. If you do not, then it is your loss,” he adds.
Chung says the two instances that most people end up not claiming for are the medical expenses for parents (RM5,000) and the purchase of books (RM1,000).
“At the end of the year, you end up saying that you should have kept that receipt you got from paying your mum’s or dad’s medical bills.
“That is why it is necessary to keep track and be mindful to keep such receipts for later use,” he says.
Former Inland Revenue Board (IRB) assistant director-general, Dr Arjunan Subramaniam, agrees that there is not much room to manoeuvre in the current tax structure.
He says the Government should take more steps to provide other forms of relief.
“However, employees must take charge of their own lives. In this current climate, they must ensure that they are not being over-deducted on their Standard Tax Deductions (STD) every month,” he adds.
Dr Arjunan says employees should talk to their employers to calculate their STD properly and to get their refunds from the IRB if they are being over-deducted.
Employers may also help by taking advantage of the exempt benefits proposed in Budget 2009 to reduce the overall tax impact of their employees.
> Maximise allowable deductions on travel allowances
The individual taxpayer is entitled to claim a tax exemption up to RM6,000 per annum for travel/petrol allowance for business travel. If these allowances exceed RM6,000, the individual can claim further deductions on the amount utilised for business travelling/official duties.
To claim these additional deductions, records to support the further deduction and the exempted amount should be kept for seven years for audit purposes. This would include keeping mileage records and travel logs on all business travels made during the year.
> Provide fixed meal allowance, which is on a regular basis given at the same rate to all employees and telephone benefits (mobile or house phone)
> Provide interest subsidy on loans totalling RM300,000 for the purpose of house purchase, personal car and employees’ education
The interest relief up to RM10,000 for housing loan announced during the mini-budget has restricted scope as this relief is only applicable for houses purchased on and after March 10 and not later than Dec 31, 2010. Therefore, this is not a broad-based relief.
> Expand the coverage of medical expenses provision by employer to include maternity benefits and post-retirement medical benefits
> Contribute more to EPF
The employer’s contribution to EPF is tax exempt even if you withdraw the money later. To maintain the employer’s cost, the employee’s current pay package could be restructured to reduce the portion of salary while increasing the employer’s contribution.
> Provide a company car
The taxable value on you for enjoying this benefit is normally lower compared with a monthly car allowance. Furthermore, the maintenance costs/road tax borne by the employer is not taxable on you.
KPMG’s Tam says companies should adopt pro-active measures to take advantage of the tax exempt benefits and allowances by restructuring the remuneration package of their employees to reduce the tax burden of the individuals.
For example, if the remuneration package can be restructured to include a reasonable amount of meal allowance, petrol allowance, childcare subsidy and so forth, a bigger portion of the remuneration would be tax free, she adds.
Individual tax rate
The primary reason for lowering individual tax rates is to increase disposable income and boost consumption during an economic downturn.
It is believed that lowering tax rates would eventually translate into greater revenue for the Government through increased consumption.
Tam thinks the Government should expand the income bracket for the lower income group while reducing the tax rate for each bracket of income.
“The top tax rate of, say, 27% could be reduced to 25%, which is similar to companies. This will ease the tax burden for the lower income group while the higher income group can still contribute more to the tax revenue of the nation even if the rate is dropped to 25%,” she says.
Rani sees a need for the Government to seriously consider the tax band in the current progressive system.
For example, the tax band jumps from 7% at chargeable income (CI) of RM35,000 to 12% at CI of RM50,000 and jumps further to 19% at CI of RM70,000. The maximum rate of 27% applies to CI exceeding RM100,000.
“This means a majority of the middle-income earners in Malaysia (with average annual CI of between RM100,000 and RM120,000) will be paying tax at the highest marginal tax rate,” Rani says.
She points out that comparing the effective tax rate for a resident individual in the Asia Pacific region, the Malaysian effective tax rate is still considerably higher compared with Singapore and Hong Kong.
“This places Malaysia in a less competitive position in attracting experts and other professionals to return to or set base in Malaysia,” she says.
According to KPMG’s Individual Income Tax Rate Survey, the picture that emerges is of a slow global decline in top rate personal income taxes, from an average of 31.3% in 2003 to 28.8% in 2008.
The highest personal income taxes in the world are paid by citizens of the European Union. It has also seen the steepest falls in average tax rates, from 41.5% in 2003 to 36.4% in 2008.
At country level, the highest tax rates in the world are paid by the people of Denmark, who have had a top rate of 59% for five years.
After the Europeans, the next highest taxes are paid by the people of the Asia Pacific region. However, there has been a decline in rates from an average of 36.4% in 2003 to 34.6% in 2008.
Currently at 16%, Hong Kong has had the lowest rate in the region for the whole period since 2003. The highest rate of tax in the region is charged by Japan, at 50%; followed by Australia and China, both at 45%.
In the US, the highest tax rate is 35%, relatively high by world standards and unchanged over the past six years. But taxpayers will only pay that rate on income over US$357,700. Similarly, in Singapore, the top rate of tax is payable only on income over US$236,640.
E-mail your queries to email@example.com to be addressed by a tax consultant firm and see the answers published next Sunday.