Individual Income Tax in Malaysia: A Guide for 2023
Introduction:
The realm of individual income tax can often seem labyrinthine and overwhelming, especially for those grappling with the regulations for the first time. In Malaysia, every income earner, be it a resident or a non-resident, must understand the intricacies of the income tax system to ensure accurate compliance and optimal financial planning. This article aims to serve as a comprehensive guide for understanding individual income tax in Malaysia for the year 2023.
Tax Residency and its Implications:
In Malaysia, an individual is deemed a tax resident if they reside in the country for a cumulative period of 182 days or more in a calendar year. Understanding one’s tax residency status is crucial, as it directly impacts the amount and type of income subjected to tax. Tax residents are taxed on worldwide income, whereas non-residents are only taxed on income derived from Malaysia.
Understanding Taxable Income:
Taxable income is the income on which an individual has to pay tax. It encompasses various forms of income, including but not limited to:
- Employment Income:
Salaries, bonuses, allowances, and any other income derived from employment. - Business Income:
Profits earned from conducting business activities. - Dividend Income:
Income earned from shares of stock. - Rental Income:
Income derived from renting out property. - Interest Income:
Income earned from savings or fixed deposits.
Each type of income may have specific exemptions or deductions applicable, and understanding these nuances is pivotal for accurate tax calculation.
Progressive Tax Rates:
Malaysia implements a progressive tax rate system for individual income tax. The tax rates for 2023 range between 0% to 30%, segmented by varying income brackets. Individuals with lower income fall into the lower tax brackets, and those with higher income are taxed at higher rates on the incremental income.
1. Resident individuals | ||||
---|---|---|---|---|
Chargeable income (RM) | YA 2022 | YA 2023 | ||
Tax (RM) | % on excess | Tax (RM) | % on excess | |
5,000 | 0 | 1 | 0 | 1 |
20,000 | 150 | 3 | 150 | 3 |
35,000 | 600 | 8 | 600 | 6 |
50,000 | 1,800 | 13 | 1,500 | 11 |
70,000 | 4,400 | 21 | 3,700 | 19 |
100,000 | 10,700 | 24 | 9,400 | 25 |
250,000 | 46,700 | 24.5 | 46,900 | 25 |
400,000 | 83,450 | 25 | 84,400 | 26 |
600,000 | 133,450 | 26 | 136,400 | 28 |
1,000,000 | 237,450 | 28 | 248,400 | 28 |
2,000,000 | 517,450 | 30 | 528,400 | 30 |
2. Non-resident individuals | |
---|---|
Types of income | Rate (%) |
Public entertainer’s professional income | 15 |
Interest | 15 |
Royalties | 10 |
| 10 |
Dividends (single-tier) | Exempt |
Business income, employment income, discounts, rents, premiums, pensions, annuities, other periodical payments and other gains or profits (include payments received for part-time / occasional broadcasting, lecturing, writing, etc. ) | 30 |
Income other than the above | 10 |
Leveraging Tax Reliefs:
Tax reliefs serve as a significant component in reducing the taxable income for individuals. The government provides various tax reliefs to encourage activities like savings, investment in education, and purchasing of books and sports equipment. Some notable tax reliefs include:
- EPF Contributions and Life Insurance Premiums:
Contributions to the Employees Provident Fund and life insurance premiums are eligible for relief. - Education Fees:
Individuals pursuing higher education in specific fields can claim relief for education fees. - Medical Expenses for Serious Diseases:
Medical expenses incurred for treating serious diseases are eligible for relief. - Purchase of Books, Computers, and Sports Equipment:
Purchases of books, personal computers, and sports equipment for promoting physical health are granted relief.
Understanding and maximizing the utilization of available reliefs can substantially reduce the taxable income and, subsequently, the tax payable.
Personal reliefs for resident individuals | |
---|---|
Types of relief | YA 2023 (RM) |
Self | 9,000 |
Disabled individual – additional relief for self | 6,000 |
Spouse | 4,000 |
Disabled spouse – additional spouse relief | 5,000 |
Child: | |
| 2,000 |
| 2,000 |
| 8,000 |
b) per physically / mentally disabled child: | |
| 6,000 |
| additional 8,000 |
Life insurance premiums (Notes 1 & 2) | 3,000* |
Employee Provident Fund (EPF) contributions and contributions to pension schemes by individuals or public servants (Notes 1 & 2) | 4,000* |
Private retirement scheme contributions and deferred annuity scheme premiums (until YA 2025) | 3,000* |
Insurance premiums for education or medical benefits | 3,000* |
Expenses on medical treatment, special needs or carer expenses for parents (evidenced by medical certification) | 8,000* |
Employee’s contribution to Social Security Organisation (SOCSO) and Employment Insurance System | 350* |
Medical expenses for self, spouse or child suffering from a serious disease, expenses incurred on fertility treatment, or vaccination up to RM1,000 (including fees of up to RM1,000 incurred by self, spouse or child for complete medical examination, COVID-19 detection test and mental health examinations or consultations). W.e.f. YA 2023, expanded to include intervention expenditure for Autism, Attention Deficit Hyperactivity Disorder, Global Developmental Delay, Intellectual Disability, Down Syndrome and Specific Learning Disabilities limited to RM4,000 as below: | 10,000* |
| 7,000* |
Purchase of supporting equipment for self (if a disabled person) or for disabled spouse, child or parent | 6,000* |
| 2,500* |
Purchase of breastfeeding equipment | 1,000* |
Fees paid to childcare centre and kindergarten (until YA 2023, extended to YA 2024) | 3,000* |
Deposit for child into the Skim Simpanan Pendidikan Nasional account (until YA 2022) | 8,000* |
Domestic travelling expenses (accommodation, entrance fee to tourist attractions and domestic tour package) (until YA 2022) | |
Additional relief (on top of lifestyle relief) for purchase of personal computer, smartphone or tablet | 2,500* |
Additional relief (on top of lifestyle relief) for cost of purchasing sports equipment, entry / rental fees for sports facilities and registration fees for sports competition | 500* |
Costs related to electric vehicle charging facilities, including installation, rental, hire-purchase of equipment, or subscription fees (YAs 2022 and 2023) | 2,500* |
Note:
1. For public servants under the pension scheme, combined relief up to RM7,000 is given for Takaful contributions or payment for life insurance premium (until YA 2022).
2. W.e.f YA 2023 the scope of the relief is expanded to cover voluntary EPF contributions
Tax Rebates and their Impact:
Tax rebates, such as those available for Zakat payments, are another vital aspect of the Malaysian tax system. These rebates are directly deducted from the tax payable, offering another avenue for individuals to manage their tax liabilities effectively.
Tax rebates for resident individuals | |
---|---|
Types of rebate | RM |
Individual’s chargeable income does not exceed RM35,000 | 400 |
If husband and wife are separately assessed and each chargeable income does not exceed RM35,000 | 400 (each) |
If husband and wife are jointly assessed and the joint chargeable income does not exceed RM35,000 | 800 |
Rebate for Zakat, Fitrah or other Islamic religious dues paid | Actual amount expended |
Rebate for departure levy paid for performing umrah and pilgrimage to holy places. | Actual amount expended (twice in a lifetime) |
Embracing Tax Deductions:
Beyond reliefs, individuals can also claim tax deductions for particular donations, gifts, and contributions made to approved charities and organizations. These deductions further reduce the taxable income, allowing taxpayers to contribute to societal welfare while achieving tax efficiency. Proper documentation is critical to substantiate the claims made under this category.
Compliance with Tax Filing & Payments:
The deadline for individual tax return submission and payment is the 30th of April of the subsequent year. Late filing and payment attract penalties, making timely compliance crucial for avoiding unnecessary financial burdens. Using online platforms like e-Filing can facilitate quicker and more efficient submission of tax returns.
Insights for Optimal Tax Planning:
- Knowledge of Tax Residency:
Determine tax residency accurately to identify the appropriate tax regime applicable. - Detailed Income Declaration:
Declare all forms of income, including those from part-time or freelance engagements, to avoid discrepancies and penalties. - Strategic Claiming of Reliefs and Deductions:
Stay informed about the available reliefs and deductions and claim them strategically to minimize taxable income. - Timely Compliance:
Adhere to the tax return submission and payment deadlines to circumvent penalties and maintain financial prudence.
Navigating through the individual income tax landscape in Malaysia necessitates a thorough understanding of various elements, including tax residency, taxable income, tax rates, reliefs, deductions, and compliance requirements. By leveraging the insights provided in this guide, individuals can approach their tax obligations for the year 2023 with enhanced clarity and confidence.
The Malaysian tax system is structured to promote fairness, encourage participation in societal development, and facilitate optimal financial planning. By being diligent and informed, individuals can fulfil their tax obligations efficiently and contribute effectively to the nation’s development.
Disclaimer:
This guide is intended to provide a broad overview of the individual income tax system in Malaysia for 2023 and does not constitute legal, financial, or tax advice. For precise and detailed advice tailored to individual circumstances and for the latest tax updates and amendments, consult with a qualified tax advisor or refer to the official publications and guidelines issued by the Inland Revenue Board of Malaysia.
For more comprehensive human resource solutions and support related to individual income tax and other HR-related inquiries, reach out to CentralHR.