How To Save Tax In Malaysia

Paying taxes are a part of our daily life, and something like expensive heavy tax payments are a major factor for stress strain in everyday life. However, avoiding the payment of taxes is not a good solution to heavy tax payments. The revenue authorities of Malaysia will find out such citizens who have evaded tax payments and take action against them. So the best way to prevent excessive tax payments or even better, save tax, is to contact reputed accounting firms and experts, who will guide you in following certain helpful tips and tricks. There are 6 smart tips that you can take:

  • Filing of individual tax assessment: In situations for married people who are high income earners every year (an income above RM600,000), this is a good method to decrease amount of tax payment, by filing assessment seperately. According to the Malaysia Budget 2017, nothing has changed from the Budget 2016, the tax rate for income between RM600,000 to RM1 million is 26% and for those earning above RM1 million is 28%. If the husband and wife opt for joint assessment, both the combined chargeable income will result in higher tax rate bracket. Likewise for middle income earners, there is a tax relief of RM2,000 to individual tax payers with monthly income below RM8,000.
  • Claiming of spouse relief: Once again for married couples, this is another good method. This is advantageous when one partner is unemployed or earns lower than RM35, 000 per annum, and the other partner is a salaried employee, by having a joint assessment and claiming relief of up to RM4,000 for the spouse has low or no income. This is applicable for Year 2016 assessment.
  • Earning of income exempted from taxes: The Private Retirement Scheme (PRS) is a long term investment scheme designed to help individual especially those running their own business who would like to achieve their retirement financial goals. The income generated from this scheme is not subject to income tax, and one can claim up to RM3,000 tax relief after investing with this scheme. Below are a few renowned financial institutions who provide PRS in Malaysia:
  • Increment of EPF contribution: The Employee’s Provident Fund (EPF) is exempted from taxes and one can gain up to RM6,000 tax relief on EPF and life insurance premium annually. Employees has the options of 8% or 11% to contribute to EPF monthly. Simply inform your employer about your choice. Maximising to 11% of salary contribution into EPF helps in reduction of tax payment. Of course, that also means your monthly disposable income has becoming lesser comparing to 8%. Measure what is comfortable for you and make the wise choice.
  • Changing of remuneration to reimbursement: If you are an employed individual, certain allowances provided by the organisation where you are working are subject to taxes and form a part of taxable employment income. This include subsidies on petrol, parking fees, toll fees and cell phones. A method of reducing these taxes is to ask your employer to convert the remuneration to reimbursements, as part of the salary of the employee. Reimbursement is not subject to taxes, as it is just a conversion of burden of expenditure, to employer from employee. So what’s in it for the employers? Reimbursement is treated as business expenses that is tax deductible hence it’s a win-win situation for both the company and employees.
  • Mitigation of losses in business: This is a useful method for married people. If one of the partners are running a minor business and has faced some amount of loss during the year of assessment, then the loss can be mitigated by applying a joint assessment scheme. Example: If the husband is an employee who is on pay checks, and the wife is running a florist shop, she may run some loss in a particular year. Applying for a joint assessment in the name of her husband will help to increase the loss deduction as well as available reliefs. This will lower the amount of tax to payable by the wife.

These are some of the easiest and legal ways to save tax every year and also gain interesting benefits. Nowadays everyday expenses are quite expensive and spending a huge amount of taxes every year is not a feasible option for the family economy. So it is better to engage in legalized tax saving procedures like the above and one can also contact their respective accounting firms for more tax saving ideas.