The 2012 Tax Season is here again and taxpayers (employed individuals) have until April 30 to file their tax returns. Sole proprietor or business partner is luckier as their deadline is June 30. Nevertheless with the e-filing system, you should not wait till the last minute as we’ve heard horror stories about people forgetting to file their taxes only to be slapped with penalty between 20% – 35% for late submissions. So if you do not mind a fine of between RM200 (min) to RM2,000 (max) or spend some time squatting in prison (not exceeding 6 months), then by all means ignore the submission.
Actually there’re many employees looking forward to this tax season as this is perhaps the only time when they can demand money from the government – excess in tax paid. Most of the time, the government owes employees money since employers normally paid more in their monthly tax deduction to the government. As a matter of fact, the government should pay employees the excess in taxes plus interest. Of course in this case the government is smarter so you can’t argue much about that extra interest which could otherwise be earned if you put it to work in the bank. And you still wonder why the government changed the taxation system to monthly tax deductions instead of yearly tax deductions many moons ago.
Unless you’re on your own business, chances are you’ve to pay huge amount of your hard earned money to the Inland Revenue Department, in this case Lembaga Hasil Dalam Negeri. As an employee what you can do is to maximize whatever allowable items within the “Part D: Deductions” section when you file your tax return. Form BE is specifically for resident who does not carry on business in Malaysia and when you logged into e-filling system, the interface is very similar to this form. We’re not going into details about Part A and Part B of the Form BE which talks about “Particulars of Individual” and “Particulars of Husband / Wife” respectively.
The interesting part starts with “Part C: Statutory Income and Total Income” whereby you declare all your incomes. The item “C1 – Employment” is the most important as this is your annual income, the main part which was taxed on monthly basis by the government. If you have investments in stock, unit trust and paid dividends during the assessment period, then you’ve to declare it at item “C2 – Dividends”. Most don’t really care about this minor item but do you know that your dividend paid may be the amount after “Income Tax at 25%”? Meaning the government already taxed 25% of your gross dividend and what you had gotten was a deducted net dividend. In short, you can claim back your money here, provided your tax bracket is lower than 25%.
Then you need to declare side-income such as rents, royalties and others. Again, most people don’t declare this extra income especially their rental (houses, shop-houses, land etc) incomes. Who in their right mind would be so honest (and stupid) as to pay extra to the government only to be used to buy condos as in the Cowgate scandal, right? Come to think of it, do you think former premier Mahathir declares his royalties (*hmm*)? Well, as long as you don’t get caught I supposed rental declaration is a tricky business (*tongue-in-cheek*).
You should pay attention to Part C8 – C15 because these are the parts which you can reduce your taxable income. Unless you’re in the business of getting contracts from the government and hence need to suck up to them, you normally ignore about giving away money, artefacts and your Monalisa paintings to the government. But still, you can declare any donations especially to institutions such as “approved” old-folk homes, schools, temples, churches, mosque and whatnot, if you’re charitable enough, in Part C8A, restricted to 7% max of total income from C1 – C6.
Part D is the most important part because this part determines your taxable amount. This is the part equals to deductable expenses and you would be surprise at how much you’ve missed out for being ignorant. To start of with, every individual is given a RM9,000 default relief.
- D2 – Medical treatment, special needs and carer expenses for parents. The scope includes medical care and treatment provided by a nursing home and even dental treatment limited to tooth extraction, filling, scaling and cleaning. The limit is RM5,000 so there’s huge room to spend.
- D5 – Education Fees (self) – Should you further your study for at Masters or Doctorate level, then you should declare this item for a deduction of up to RM5,000 max.
- D7 – Complete medical examination for self, spouse or child. You should use up the RM500 limit for such purpose, example, medical checkup or comprehensive blood-check from Pathlab or BP Healthcare.
- D8 – Purchase of books/magazines/journals/similar publications (except newspapers and banned reading materials) for self, spouse or child – Another splendid area where you should spend to the limit (if possible) of RM1,000. Some of the magazines you can consider includes The-Edge, automobile-related, business-related, smartphone-related, stock and finance related and whatnot. Also you can buy tons of books (either printed or electronic from Amazon or Apple Inc.’s (Nasdaq: AAPL, stock) AppStore for yourself, spouse of kids. So, remember to insists on receipts the next time you buy those materials.
- D9 – Purchase of personal computer for individual (deduction allowed once in every 3 years, limited to RM3,000). By now you should have at least a desktop, netbook or a notebook at home. The trend now is about tablet so why don’t you go get yourself a new iPad 3? Yes, many do not know that iPad is qualified for tax relief under this D9’s purchase of personal computer. As long as a tablet does not have phone call feature or sms, it is considered as personal computer. But iPad with WiFi and 3G can still make calls using Skype, Yahoo Messenger, right? Well, those VoIP will only functions if you install the softwares but by default it wasn’t built-in so unlike iPhone it’s not considered a phone, and of course you cannot include iPhone, Samsung, HTC or other smartphones for tax relief.
- D11 – Purchase of sports equipment for any sports activity, restricted to RM300. Sports equipment includes equipment with short lifespan such as golf balls and even shuttlecocks but excluding sports attire such as swimsuits and sports shoes. You may scream till foam at mouth – how the heck do you expect a person to swim without swimsuits or run without a pair of sports shoe. I supposed the government thought it would be fun if you swim naked or run around barefoot like a chicken (*grin*).
- D12 – An amount limited to a maximum of RM500 is deductible in respect of expenses expended by the individual for the payment of broadband subscription under the individual’s name. Thus, be it land-line TM Streamyx or Wireless Internet broadband packages offered by Maxis, Celcom or DIGI, you can claim up to RM500.
- D13 – Interest on housing loan – An amount limited to a maximum of RM10,000 is deductible for each basis year for a period of three consecutive years of assessment beginning from the date in which the interest is first expended. However the Sale and Purchase (S&P) Agreement must be executed between 10 March 2009 to 31 December 2010.
- D16 – If you have children, don’t forget to claim for tax relief on this part. Of course if you kids already married then ignore this unless you think IRD officers sleep on their job all the time.
- D17 – Life insurance and provident fund, limited to RM6,000. You should not ignore this part due to the huge sum of tax relief allowed. This part consists of both (monthly) EPF contribution and life insurance premium paid. Some made the silly mistake thinking this is applicable to insurance premium only and forgot about their EPF contribution so they totally ignored the cool RM6,000 tax relief. If you’re earning RM4,550 monthly, your annual EPF contribution would have already used up the RM6,000 tax relief alone.
- D19 – Education and medical insurance. A relief not exceeding RM3,000 is available on insurance premiums paid in respect of education or medical benefits for an individual, husband, wife, or child. With the escalating medical expenses nowadays, most of people would have some sort of medical plan already, such as the infamous 36-critical illnesses insurance coverage. Therefore, remember to include this for the tax relief.
The above 11 items are perhaps the most important deductions you should pay extra attention. Sure, not all of the 19 total deductions allowable in “Part D” are relevant to you but it’s always worthwhile to spend extra time on this section. The objective is to get the “D12 – Total Relief” item a figure as huge as possible.
Part E, Tax Payable, is the second best part. Your heart-beat should be beating faster by now as you calculate the “Chargeable Income”. This chargeable figure will determine which bracket of taxable rate you belong to. If your chargeable income is above RM100,000 then congratulations because you’ve reached the highest tax rate of 26% (*drum please*). Calculate the total income tax accordingly based on the tax rate schedule.
Part F – Status of Tax For Year of Assessment (Year) – is the climax and orgasm stage because you’ll know how much the government will have to refund you (without any interest, of course) or otherwise. Of course you may start cursing your HR (human resources) department next thing in the morning because they under declare your monthly PCB income tax and now you’ve to pay the difference to government. But you may also want to thank the HR because you’ve earned the interest (if any) on any surplus which may otherwise benefits the government. Happy Tax Season.
** Update: We have an updated article published on 22-Mar-2014 in preparation for Year of Assessment 2013, titled 15 Tax Deductions You Should Know – e-Filing Guidance.
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