Monthly Tax Deduction as Final Tax

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1 flash International Executive Alert A Publication for Global Mobility and Professionals by KPMG s International Executive Services Practice Malaysia New Budget Brings Some Relief for Middle- and Lower-Income payers by KPMG, Kuala Lumpur (KPMG in Malaysia is a KPMG International member firm) In This Issue: * Monthly Deduction as Final * Relief for Middle Income payers * Real Property Gains * Reduction in Rates * Implementation of Goods and Service The 2014 budget proposals were presented by Malaysia s Prime Minister YAB Dato Sri Mohd Najib Tun Abdul Razak on 25 October Some of the tax measures that affect individuals including those on international assignment and their employers are briefly outlined below. Monthly Deduction as Final Currently, employers are responsible for remitting Monthly Deduction ( MTD ) payments to the Malaysian Inland Revenue Board ( MIRB ) every month. Employers make MTD payments through salary deductions after deducting for standard reliefs and additional reliefs as requested by the employees. The same employees are required to submit tax returns to the MIRB on or before 30 April in the following year. The submission of tax returns burdens the employees as the MTD remitted by the employer may be equivalent to the income tax payable by the employees. To ease the burdens and foster compliance for employees whose total income tax is equivalent to the total amount of MTD, it is proposed that such taxpayers no longer need to submit tax returns. Hence the amount of MTD remitted represents the final tax paid. This proposal is only applicable to an individual: who only receives employment income and is not provided with benefits-in-kind and living accommodation; who is subject to MTD; employed by the same employer for the whole calendar year; whose tax liability is not borne by the employer; whose spouse did not elect for combined assessment. The individuals are deemed to have made an election not to submit returns if no returns are furnished by 30 April of the following year. The MTD made would be deemed as tax payable for that year of assessment. However, the Director General of MIRB may raise assessment or additional assessment where it appears to him that additional income ought to have been charged. The deemed final tax will be disregarded. The proposal is effective from Year of Assessment ( YA ) 2014 (i.e., effective from 1 January 2014) KPMG Services Sdn Bhd., a company incorporated under the Malaysian Companies Act, 1965 and a member

2 Relief for Middle-Income payers Currently, tax resident individuals are subject to tax on their chargeable income after deducting allowable expenses (i.e., contributions to approved institutions and tax reliefs) and rebates (i.e., MYR 400 for a taxpayer with chargeable income up to MYR 35,000, and MYR 400 for the spouse if the spouse has no income or elects for combined assessment and rebate in respect of zakat paid by Muslim taxpayers). To increase the disposable income of the middle-income taxpayer group, it is proposed that a special relief of MYR 2,000 be given to tax resident individuals earning up to MYR 8,000 a month (aggregate income up to MYR 96,000 a year). The proposal is effective for YA 2013 only (i.e., from 1 January 2013 to 31 December 2013). Real Property Gains ( RPGT ) To aid in curbing speculative activities in the real property market, the RPGT rates are once again reviewed subsequent to the previous revision effective 1 January 2013 (announced in the previous budget). The comparison between the current and proposed effective RPGT rates applicable to citizens, permanent residents, and non-citizen individuals on gains arising from the disposal of real properties and shares in real property companies are as set out below: Disposal Previously Proposed RPGT Rates Individuals (Citizens & Permanent Residents) Individuals (Non Citizens) Within 2 years 15% - - Within 3 years 10% 30% 30% In the 4th year 10% 20% 30% In the 5th year 10% 15% 30% In the 6th year and subsequent years 0% 0% 5% The above proposal is effective from 1 January The government has also increased the minimum price of property that can be purchased by foreigners from MYR 500,000 to MYR 1,000, KPMG Services Sdn Bhd., a company incorporated under the Malaysian Companies Act, 1965 and a member 2

3 Reduction in Rates To increase the disposable income of individuals and in line with GST implementation, it is proposed that the income tax rates for resident individuals be reduced by 1 percent to 3 percent. The comparison between the current and proposed individual income tax rates is as follows: Current Proposed Savings Chargeable Income (MYR ) Rate Without Rebate liability Rate Without Rebate liability (%) (MYR ) (MYR ) (%) (MYR ) (MYR ) (MYR ) (%) 1-5, ,001-20,000 20,001 35,000 35,001 50,000 50,001 70,000 70, , , , , ,000 Exceeding 400, * 0 0* * 150 0* , * * , ,500 2,850 2,850 2,400 2, , ,200 6,650 6,650 5,600 5,600 1, , ,300 13,850 13,850 11,900 11,900 1, , ,000 52,850 52,850 47,900 47,900 4, , ,750 91,850 91,850 84,650 84,650 7, * after personal tax rebate of MYR 400 for chargeable income up to MYR 35,000. Nonresident individuals income tax rate is reduced by 1 percent from 26 percent to 25 percent. The proposal is effective from YA 2015 (i.e., effect from 1 January 2015) KPMG Services Sdn Bhd., a company incorporated under the Malaysian Companies Act, 1965 and a member 3

4 Implementation of Goods and Service ( GST ) GST will be effective from 1 April 2015, with a standard rate of 6 percent and will replace the existing sales tax and service tax. Broadly, GST is a consumption tax based on the value-added concept. It is a form of indirect taxation and is imposed on taxable goods and services at each stage in the supply chain. This means that ultimately consumers will bear the tax. Being a broad-based tax, GST can be charged on practically all supplies of goods and services. However, some supplies will be designated zero-rated or exempted (where GST will not be charged) namely, basic food items, transportation, education, and the residential housing and health sectors, so as not to burden the lower income groups. KPMG Note: To Sum Up Below we sum up the general impact of the measures described above on taxpayers: Easing the burden of compliance for taxpayers (who are not provided with benefits and housing) who are within the Monthly Deductions ( MTD ) threshold for filing the tax returns. Mitigating the tax take with respect to tax resident individuals earning up to MYR 96,000 per annum through the provision of a special MYR 2,000 relief. Applying higher rates of Real Property Gains to individuals selling real estate and shares in real property companies; this is intended to curb flipping and other highly speculative activities. Starting in April 2015, the institution of a Goods and Services ( GST ) applied to most goods and services purchased by consumers. The government will help ease individuals transition to the GST regime, with individual income tax rates being reduced by 1 percent to 3 percent to increase their disposable income. Reflecting a more progressive and competitive tax structure, the chargeable income subject to the maximum rate would be increased from exceeding MYR 100,000 to exceeding MYR 400,000. The maximum rate will be reduced to 25 percent. The above measures represent a varied menu of tax decreases and increases, but also an effort to simplify individuals compliance obligations in certain circumstances. Footnote: 1 The Budget speech and related budget documents can be found on the Bajet 2014 Web page on the Web site for Malaysia s Ministry of Finance: * * * * 2013 KPMG Services Sdn Bhd., a company incorporated under the Malaysian Companies Act, 1965 and a member 4

5 MYR 1 = EUR MYR 1 = USD MYR 1 = GBP For further information, please contact your local IES professional, or Datin Pauline Tam (tel. +60 (3) ), with the KPMG International member firm in Malaysia. The information contained in this newsletter was submitted by the KPMG International member firm in Malaysia. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. Flash International Executive Alert is an IES publication of KPMG LLP s Washington National practice. To view this publication or recent prior issues online, please click here. To learn more about our IES practice, please visit us on the Internet: click here or go to KPMG Services Sdn Bhd., a company incorporated under the Malaysian Companies Act, 1965 and a member 5