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Malaysia Taxes: 10 Legal Ways For Malaysian To Pay Lesser Tax and Save Money

HAVE YO PAY TAX AGAIN? 🙁

Tax season can be stressful at times for anybody, especially if you have other things on your plate at the same time. If you’re already juggling your utility bills, grocery shopping, and other housing expenses, finding out that you still owe government taxes can be a real nightmare.

But don’t be panic yet! There are some ways for you to lower the taxes you pay year after year. And the best part is that they’re all perfectly legal! So, let’s check out these 10 smart tax moves that Malaysians can make to maximize the opportunities offered by tax laws and to reduce tax liability.

1. Cut-off Income

If your income falls below the mandated minimum, chances are that you may only need to pay the bare minimum in income taxes. Starting in 2013, the Malaysian government determined that any annual income falling below the cut-off of RM 34,000 after EPF deductions (about RM2,800 per month or less) shall not be taxable. However, this figure may change over time.

2. Change Remuneration / Allowance to Reimbursement

If you’re an employee, fixed allowances given by your employers such as mobile subsidies and parking fees are taxable as they are considered part of your employment income. One way to go about this is by requesting your employer to change these fixed allowances from remuneration to reimbursement (claims) as part of your salary package.

Reimbursement is not taxable as it is merely a transfer of the burden of expenses from employee to employer. Unlike allowance, employees do not get private benefits from reimbursement.

On the other hand, employers do not have to worry as reimbursement will be treated as a business expense and would be tax-deductible. In fact, most employers prefer reimbursement over allowance, as the company can claim for input tax incurred under reimbursement so it is a win-win situation for both employees and employers.

3. File Separate Tax Assessment

If you are married and both spouses command high salaries during the assessment year, you and your partner will both pay less in taxes if you file for separate assessment.

This is especially true for super-high income earners. In Budget 2016, tax rate for those earning an income between RM600,000 (RM50,000/month) and RM 1 million (RM83,333/month) was increased from 25% to 26%. Meanwhile, for those earning above RM1 million, the tax rate was increased from 25% to 28%.

Middle-income earners can also benefit from filing for separate tax assessments. In the revised Budget 2016, the Prime Minister announced that the Government will provide tax relief of RM2,000 to individual taxpayers earning a monthly income of RM8,000 and below. This relief will apply for the year of assessment 2015 and can be enjoyed by both husband and wife respectively by filing for separate assessment.

4. Lifestyle Tax Relief

Effective for the assessment year 2017 (tax filed in 2018), the lifestyle tax relief at a limit of RM2,500 yearly will include new categories as below:

  • Purchase of printed newspapers
  • Smartphones and tablets
  • Internet subscriptions
  • Gymnasium membership fees

5. Claim Spouse Relief

If you’re married, Malaysia offers limited tax relief of RM 3,000 for those making alimony payments towards their husband or wife. Tax relief of RM 3,500 also exists for those supporting a disabled spouse.

Joint assessment, on the other hand, is beneficial to a couple if either the husband or wife is a salaried employee and their spouse has no income or earns less than RM35,000 in a year.

The tax relief for an individual taxpayer whose spouse has low or no income has been increased to RM4,000 for the year of assessment in 2016. What a great news to all married couples!

6. Mitigate business losses

Here’s another tip for married couples – If you are running a business and have unfortunately incurred some financial losses during the assessment year, one way you can mitigate these losses is by filing for joint assessment.

For instance, you run a coffee shop while your wife is a salaried employee. If you are making some small losses in your business, electing for joint assessment under your wife’s name would help to maximize the business loss deductions and reliefs available.

7. Education

If you’re paying your own way through college or university, you might be entitled to a tax exemption. In Malaysia, you may qualify for a tax deduction of up to RM 7,000 if you are pursuing higher education – specifically if you are pursuing a degree at the Masters or Doctorate level.

8. Earn Tax-Exempt Income

One example of this is the Private Retirement Scheme (PRS), a voluntary long-term contribution scheme designed to help self-employed individuals accumulate savings for retirement. Income generated from PRS is exempted from income tax. You are also allowed to claim tax relief of up to RM3,000 per annum when you invest with PRS. So, hurry up and invest!

9. Donations and Gifts

The government also grants tax deductions to avid philanthropists who donate large sums of their income towards public, civic, charitable, or religious causes. A sizable percentage of your income must go into the donation before you can qualify for the tax deduction.

In Malaysia, the amount of aggregate income eligible for tax deductions is limited to 7% if you have made a monetary donation to approved institutions, organizations, sports bodies, or projects and National Interests vetted by the Ministry of Finance.

10. Ask Your Employer to Increase EPF Contributions

Contributions to EPF are tax-exempt. Plus, the relief for EPF contributions in FY2019 reduced to RM4,000 from RM6,000 previously. This year, the tax relief would be separated to RM4,000 for EPF and RM3,000 for life insurance starting YA2019.

EPF contributors with at least RM60,000 annual income (RM5,000 a month) and whose life insurance premium is more than RM3,000 a year (>RM250 a month), would see a net RM1,000 increase in relief combined. 

Read More -> Should EPF tax relief be reduced next year?

So, now you have a better understanding of the various tax reliefs available in Malaysia and identifying which are applicable to you can help ensure that you spend wisely and maximize your income tax savings for future retirement!

If One Thing is Certain, it’s Taxes!

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