Potongan Cukai Berjadual (PCB) / Schedular Tax Deduction (STD) in Malaysia

What is PCB/STD in Malaysia ? How does it work ? What is the minimum salary to be caught under the PCB net ?

Among the top searches that came to this site is on “PCB/STD”. This posting explains the workings of PCB/STD in Malaysia and how the calculations are computed.

PCB/STD is based on the commonly known “Pay-As-You-Earn” (PAYE) principal practiced in many countries. Before STD/PCB was introduced in Malaysia, taxpayers were subjected to “preceding year assessment” basis, meaning you declare this year, what you earned last year, and you pay tax this year for last year’s income.

For example, you earn salary of RM100,000 in the whole year in 2008. You only submit your income in Form BE in April 2009. As a result, you only pay your income tax in 2009 for your 2008 income.

This practice posed problems for IRB’s collection department mainly due to taxpayers who already spent their money earned in 2008 and they failed to set aside money to pay for their tax.

The PCB/STD was introduced to collect income tax as and when they are earned by taxpayers. Therefore, the IRB has directed employers to deduct a certain amount out of the monthly salaries of taxpayers to pay for their income tax. Hence, Pay-As-You-Earn (PAYE).

With PCB/STD, taxpayers are no longer paying income tax for preceding year’s income. The tax deducted is from the month’s income is to pay for income tax for that month’s salary.

PCB/STD is not a final tax. As income tax is collected based on an employee’s salary, taking into account his/her marital status, whether spouse working or not and number of children, it is only an estimate. What the STD/PCB fails to take into account are other things such as,

- whether or not you have life, medical or education insurance
- claims for purchase of personal computer
- claims for medical expenses for self, spouse or parents
- claims for purchase of books
- claims for purchase of sports equipments
- whether you have other income such as dividends or rental, etc

Therefore, the PCB/STD paid in a year can almost never be exactly the actual income tax payable.

When the final tax is calculated during the submission of Borang BE in April the following year, then only we will know what the actual tax payable is. If the actual tax is more than the accumulated PCB/STD for the year, the difference will have to be settled not later than 30 April the following year. If the accumulated PCB/STD is more than the actual tax, the IRB will repay the taxpayer.

What is the minimum salary a taxpayer earns before he/she is subject to PCB/STD ?

That depends on whether he/she is married, spouse working or not and number of children he/she has. A single person and a married person with 4 kids may earn the same amount of salary but the single person may be subject to PCB/STD but the married person may not.

Similarly, a married man whose wife is working and has 1 child may be subject to different PCB/STD amount compared to a married man whose wife is not working and has 3 kids.

To see if you are subject to PCB/STD, please refer to the table in the IRB’s website.

To calculate the PCB/STD, one must determine his/her category in the table. If an employee is single or married and his/her spouse is working, then he/she falls under Category 1. If he/she is married and his/her spouse is not working, then Category 2.If he/she is married and his/her spouse is working, then Category 3.

Under categories 2 and 3, there is K, K1, K2, K3, etc. This refers to number of children the employee has. K means no children, K1 – 1 child, K2 – 2 children, etc.

After determining which column he/she falls under, next is a take his/her monthly gross salary less employee’s portion of EPF (limited to RM500). Use the net amount to find the band of salaries in the first column. Then, follow the row to the correct category to get the amount of PCB/STD applicable.

A detailed example (though rather complicated) is given in the IRB's website here.

So you missed the Income Tax Form BE submission deadline, what now ?

The deadline for submission of Income Tax Form BE for 2008 was 30 April 2009. There may be many who missed the deadline for various reasons.

What happens next ? What are the penalties ?

Let us examine the Income Tax Act (ITA) to see what penalties are there and what the IRB’s practice is.

Section 112(1) of the ITA states that if you default in submitting the Form B or BE before the deadline ‘without reasonable excuse’, you are liable to a fine not exceeding RM1,000 or 6 months jail or both ‘on conviction’.

In practice, the IRB seldom use this Section to charge you (unless you are a big fish). This is because in order for them to apply this Section, they have to charge you in court and get a conviction. Note that there is still an escape clause “without reasonable excuse”. You may have a reasonable excuse and in order to get a conviction from the court, it may take years.

Section 112(3) says that if no prosecution in instituted, then the IRB may require you to pay a penalty equal to ‘three times the amount of tax payable’ (before any set-off, repayment or relief). If you have paid the penalty under Section 112(3), then you shall not be charged under Section 112(1) again.

So in practice, the IRB will usually fine you under Section 112(3). For normal salaried workers who file in Form BE, they usually impose a fine of RM50 for the first offence. If you are still late next year, they may impose a fine of RM100. The next year, RM150 etc.

It is interesting to note that Section 112(3) allows the IRB to impose a fine only if you are taxable. Note the wordings ‘three times the amount of tax payable’. If your tax payable is ‘0’, three times ‘0’ is still ‘0’.

So if your ‘Tax payable’ under item E9 of the Form BE is ‘0’, then you need not worry this year as the IRB will not be able to impose a fine on you. However, the IRB will take note that this is your first offence. If you are late again next year, they may fine you RM100 right away if you have tax payable.