It’s that time of the year again- the season where legally employed Malaysians and their employees figure out their income tax rate, calculate their tax reliefs and add up their tax refund.
Now if you’re legally employed in Malaysia, or you are an employer here, you would have to pay taxes. However, in this article, we’ll be solely focusing on individual income tax, which means tax paid by employees in Malaysia.
If this is all still new to you, or if you just need a quick refresher, we’ve got you covered. Here is our guide to exactly how much tax you’ll have to pay in 2022.
Who should pay taxes?
According to Lembaga Hasil Dalam Negeri (LHDN)–also known as the Inland Revenue Board–those earning at least RM34,000 a year after EPF deductions need to pay taxes. Those who fail to do so can face legal action, so make sure you do your part and declare your income.
However, you should still file your taxes even if you earn less than RM34,000 annually. You won’t have to pay anything, but it is still necessary to declare your income. At this juncture, it’s worth mentioning that there’s a difference between filing your tax returns and paying taxes, as not everyone who files their returns will need to pay tax–only those who earn RM34,000 and more a year.
Adding on to this, any income that you earn outside of Malaysia is not taxable. You are also not required to pay taxes in Malaysia if you have been employed for less than 60 days. You will, however, need to declare ALL types of income (part time and freelance included) that you earn in Malaysia.
Do foreigners who are working in Malaysia need to pay tax?
Yes, like Malaysian nationals, all foreigners who have been employed in Malaysia for over 182 days are eligible to be taxed under standard Malaysia income tax laws and rates. However, foreigners working in Malaysia must visit the nearest LHDN branch or Non-Resident Branch to give notice of their chargeability within 2 months of their arrival in Malaysia.
How are my taxes calculated?
Firstly, the total of all your incomes in the whole tax year will be added. Then, if you qualify for any of the tax exemptions and reliefs, those amounts will be deducted from your income amount. Tax exemptions and reliefs are ‘discounts’ you can get for certain expenses made in the year. We’ll look at what exemptions you can for the 2021 tax year shortly but for now, this is what you need to know:
Total income - tax exemptions and reliefs = chargeable/taxable income
Your tax rate is calculated based on your taxable income. So the more taxable income you earn, the higher the tax you’ll be paying. Per LHDN’s website, these are the tax rates for the 2021 tax year.
Coming back to the tax exemptions and reliefs, these are all the ones that were announced by the government during the 2022 Budget speech:
Individuals and families
- RM9,000 for individuals
- Up to RM4,000 for those who contribute to the Employees’ Provident Fund (EPF), including freelance and part time workers
- Up to RM3,000 for kindergarten and daycare fees
- Sales tax fully waived for new passenger vehicles
- 100% exemption on import and excise duties, sales tax and road tax for electric vehicles
- 50% off for car seat purchases for B40 families
Lifestyle and entertainment
- Up to RM1,000 for domestic travel expenses
- Full exemption on entertainment duties for theme parks, cinemas, sporting events etc.
- Up to RM2,500 for book purchases or newspaper and magazine subscriptions, both physical and online
- Up to RM2,500 for gym subscriptions or purchase of sports equipment
- Up to RM2,500 for purchases of mobile phones, laptops, tablets and similar devices
- Up to RM2,500 for internet subscriptions
Health and well-being
- Up to RM1,000 for a full medical check-up
- Up to RM,000 for vaccinations
- Up to RM8,000 for parents’ medical expenses and care
Please note that you can claim the above for expenses made on or before 31st December 2021 only.
What happens if you don't file your taxes on time?
You will still be able to file your income tax. However, you may possibly face an interest charge. According to the Inland Revenue Board Of Malaysia (LHDN), failure to pay your taxes on time will incur a 10% increment on your payable tax.
Therefore, if you’re a very busy person, or if this is your first time doing this, you might just forget to fill up that LHDN form on time. Do note that the deadlines for tax filing are 30th April 2022 and 15th May 2022 for manual filing and e-Filing, respectively.
Stay tuned for our next article to find out how to file and pay your income tax in 2022.