How to compute your income tax

FOR illustration purpose, appended below are the computations showing the tax position of a taxpayer under two scenarios, i.e, under separate and joint assessment:

1. For business and rental income, these income should be reported net of expenses wholly and exclusively incurred in the production of the said income.

Lee Voon Siong

2. If entertainment expenses are incurred with the company’s business, a claim for deduction can be made.

However, details such as persons entertained, purpose, matters discussed and the receipts must be available to support the claim when requested.

The amount deductible is restricted to the amount of entertainment allowance received.

3. Taxable dividend is normally received by taxpayer net of tax but for tax reporting, gross dividend must be declared.

The original dividend voucher must be retained to support the tax credit claim. If a loan is used to purchase the shares, the loan interest can be deducted against the gross dividend income.

4. Only donations to approved institutions are allowable. The approval is normally indicated on the donation receipts, which must be kept for verification.

5. For EPF and life insurance claim, a husband and wife can claim up to a maximum of RM6,000 each if they are separately assessed.

Under a joint assessment, the maximum allowed is RM6,000.

6. If a husband and wife are separately assessed, they are allowed to claim up to a maximum of RM5,000 each on medical expenses incurred on their parents.

The maximum amount claimable is restricted to RM5,000 under a joint assessment.

7. A tax rebate is given if the taxpayer’s chargeable income does not exceed RM35,000.

If the tax rebate exceeds the actual tax payable, the amount of tax rebate deductible is restricted to the actual tax charged.

8. From the above tax computations, it can be noted that the total tax payable is substantially lower under a separate assessment.

However, depending on their circumstances, married couples are advised to do their computations before deciding whether it is more beneficial to be separately or jointly assessed.

In view of the deadline April 30 for non-business cases and June 30 for business cases, taxpayers are advised to submit their tax returns early to avoid the last minute rush.

Penalties will be imposed for late submission of tax returns.

Lee Voon Siong is executive director of RKT Tax Consultants Sdn Bhd, an independent member firm of RSM International, an affiliation of independent consulting and accounting firms with the 7th largest worldwide network.

He can be contacted at
leevs@rsmi.com.my.

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Malaysia’s GDP to grow 5.8% this year, says UN body

KUALA LUMPUR: Malaysia’s economic growth is expected to grow at a slower pace of 5.8% in 2008 after making gains in 2007 to 6.3% due to higher private consumption and fixed gross investment, a United Nations body said on Friday.

The UN Economic and Social Commission for Asia and the Pacific (Escap) said the main factor for the anticipated slowdown in the economy is the slowing in the electronic export market

“The main drag on Malaysia’s exports has been the weaker demand for semi-conductors and other electric products in the United States market,” Escap said in a report “Economic and Social Survey of Asia and the Pacific” released on Friday.

On the inflation outlook, ESCAP said it was expected to rise to 2.8% in 2008 after dipping in 2007 to 2%.

On Wednesday, Bank Negara Malaysia said it expected the economy to grow between 5% and 6% this year and inflation was expected to rise to 2.5%-3% this year from 2% last year.

Escap said Malaysia’s economic growth in 2007 was based on strong domestic demand which more than compensated for a downturn in export growth to 2.1% in 2007 from 7.4% a year earlier.

Private consumption grew by 10.7% in 2007 from 7.1% in 2006, while investment spending rose by 9.5% in 2007 from 7.9% a year earlier. “Overall, the growth rate of domestic demand increased to 9.7% from 7.0% in 2006,” Escap said in its survey report.

On the inflation rate in 2007, the UN body said this was a result of a 5% appreciation of the ringgit against the US dollar that put downward pressure on import prices. Local interest rates have remained stable.

Malaysia remained a target for direct investment. This increased to US$8.6bil (RM27.5bil) in 2007, up from US$6.1bil in 2006, while outward direct investment climbed to US$9.7bil from US$6bil a year ago. The outflow of funds also eased pressure on the ringgit’s appreciating in value.

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PM: Bursa’s Main, Second Boards to be combined

KUALA LUMPUR: Prime Minister Datuk Seri Abdullah Ahmad Badawi announced on Tuesday that the three boards on Bursa Malaysia would be streamlined.

Speaking at the Invest Malaysia 2008 conference here, he said the Main and Second Boards would be combined to set up one board for more established companies with strong financial records.

Abdullah, who is also the Finance Minister, said the Mesdaq market would also be revamped under the proposed streamlining process.

He also said the government would allow a third credit rating agency to be set up and foreign strategic partners could hold 49% equity interest.

The highlights of his speech also include measures to liberalise approvals for bond markets and also a review of the implementation of economic plans.

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We Save Earth...

http://www.earthhour.org/
Close electricity on 29 March, 8pm for 1
hour. It is going to be simultaneously
held worldwide.

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A link of MSC Company....

Click here http://www.msc.com.my/cs/company/default.asp

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Taxable income for individuals, businesses

ALL revenue income derived from a source within Malaysia are subject to tax unless specifically exempted. Foreign source income remitted into Malaysia are exempted from tax.

The classes of income that are subject to tax for an individual include the following:

Employment income

Employment income which must be reported in the employee’s tax return includes the following:

Salary, wages, commission, bonus, gratuity, perquisite or allowances (perquisite would include the following payments made by the employer on behalf of the employee: utility bills, income tax, children’s education expenses, individual club membership, employee share option scheme and loan interest);

Benefits-in-kind such as car, driver, corporate club membership, mobile phone, household furniture and appliances; and

Value of living accommodation, servant and gardener.

Certain expenses are allowable against the employment income such as professional membership fees, and travelling and entertainment expenses. The onus is on the employee to prove to the Internal Revenue Board that the expenses were incurred for business purposes.

Employment income which is exempted from tax and need not be reported includes:

Leave passages provided to the employee, his spouse and children up to a maximum of RM3,000 for one overseas trip and up to a maximum of three local trips per year;

Retirement gratuities (on meeting certain conditions);

Employees Provident Fund withdrawals; and

Dental or medical treatment or child care benefit.

Dividend income

The tax treatment will be as follows:

Normal dividends: Dividends are received net of tax by individual shareholders. The gross amount of the dividend is declared in the tax return.

A Section 110 tax credit (27%) can be claimed against the income tax suffered on the dividend income. If a resident individual’s marginal tax rate is lower than 27%, the excess tax credit can either be refunded or used to set off against the tax payable on other sources of income.

Tax exempt and foreign dividends: These dividends are exempted from income tax and need not be declared in the tax return.

Expenses which are deductible against the dividend income are:

Commission or brokerage fee;

Stamp duty on transfer of shares; and

Interest on loan obtained to purchase the shares.

Interest income

Interest income received is subject to income tax and is required to be reported in the tax return. However, interest paid by a financial institution in Malaysia to a resident individual is not required to be reported in the individual’s tax return as the withholding tax of 5% is treated as a final tax.

Rental income

Rental income is required to be reported in the tax return and is normally treated as an investment income.

Expenses which are allowable against the rental income are:

Quit rent and assessment;

Insurance premium on the property;

Replacement costs on assets used in the property;

Repairs and maintenance;

Interest on loan obtained to purchase the property;

Commission and agency fee;

Advertisement for letting out of property.

Expenses incurred on advertisement, commission and legal fees for the first tenancy agreement are not allowed as these expenses are capital in nature.

Rental losses are not allowed to be utilised to set-off against other sources of income.

Business income

The taxable income of a business is determined after deduction of the following:

All expenses and outgoings incurred wholly and exclusively in the production of the business income;

Capital allowances; and

Any unabsorbed business losses brought forward.

Expenses which are wholly and exclusively incurred in the production of the business income would include:

Interest on loan used in the business;

Rental in respect of any land or building occupied;

Employee costs;

Specific provision for doubtful debts/bad debts; and

Repairs and maintenance.

Depreciation on fixed assets is not deductible.

However, capital allowances can be claimed provided the fixed assets are owned by the taxpayer and are in use for the business at the end of the basis period.

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Preparing personal income tax returns

WHO is required to submit a tax return? A person who is chargeable to tax is required to submit an income tax return to the Inland Revenue Board (IRB).

Chargeability to tax would depend on the amount of income reported and the reliefs and deductions claimed. For example, an employee who is single and earning RM27,000 annually would be chargeable to tax if his claim for relief is limited to self relief and Employees Provident Fund.

An individual who is filing his tax return for the first time will have to register a tax file with the IRB. He can do this by going to the nearest IRB office and bringing along his identity card/passport, Form EA and marriage certificate, if married.

How will you be taxed?

An individual is taxed on his chargeable income after deduction of personal reliefs. He will be taxed at scale rates starting from 0% (on the first RM2,500) to a maximum of 28% (on chargeable income exceeding RM250,000).

A non-resident individual will be taxed at a flat rate of 28% on his gross income without any relief.

Types of tax returns

Any taxpayer who has not been issued a tax return by March 31 must request for one from the IRB by April 14.

The income tax form must be completed and submitted to the IRB's Processing Unit in Pandan Indah, Kuala Lumpur. The types of income tax forms issued by the IRB are shown in the table.

Taxpayers who have previously submitted their tax returns via e-filing will no longer be issued tax returns.

Taxpayers who have received their tax returns but wish to submit their tax returns via e-filing can do so by logging in to the IRB’s website (https://e.hasil.org.my) using the pin number printed on their income tax returns. An acknowledgment will be issued online automatically upon submission of the return.

For taxpayers who are filing their tax returns for the first time and wish to use the e-filing system, they can obtain their pin number as follows:

# Visit the nearest IRB office, or

# Call the IRB office and fax over a copy of their IC with their handphone number. The pin number will be sent via SMS.

Any person who fails to submit a return or notify the director general of his chargeability to tax will, on conviction, be liable to a fine of between RM200 and RM2,000 or imprisonment of up to six months or both.

How to settle tax liability?

Employees are subject to schedular tax deduction (STD) on their monthly remuneration based on an STD table. The STD will have to be remitted by the employer to the IRB by the 10th of the following month.

For taxpayers who received income other than employment income, the tax liability on that income will have to be settled by six bimonthly instalment payments starting from March the following year.

The IRB will issue a Notice of Instalment Payment (CP 500) stating the amount, due date and number of instalments.

Each instalment must be remitted to the IRB within 30 days from the due date. If the taxpayer is not agreeable to the instalment scheme, he can request for a variation by June 30.

Any balance of tax payable (i.e, total tax payable less STD and instalment payments) must be remitted to the IRB by April 30 (non-business cases) or June 30 (business cases).

Tax payments can be made:

# At the IRB payment counter in Jalan Duta, KL;

# By attaching the cheque to the tax return submitted; or

# Via selected commercial banks appointed by the IRB (the bank in slip must be retained as evidence of payment).

Penalties of up to 15% will be imposed for late payment.

# Lee Voon Siong is the executive director of RKT Tax Consultants Sdn Bhd, which is an independent member firm of RSM International. The latter is an affiliation of independent consulting and accounting firms with the 7th largest worldwide network. He can be contacted at leevs@rsmi.com.my.

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Our economic planning unit...

Click below:
http://www.epu.gov.my/New%20Folder/development%20plan/2nd%20outline.htm

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