New PCB System ?

The Star newspaper published the following article on 10 July 2009.

No other information is available after the publication. A check in the LHDN’s website also does not show any new PCB system or table. Borang TP1 has been in use since January 2009.
It does not look like there is a ‘new’ tax deduction system from July. This announcement is confusing employees and employers and should be ignored.

Published: Friday July 10, 2009 MYT 9:07:00 PM
New tax deduction system from July
By SARBAN SINGH

PORT DICKSON: A new schedular tax deduction system from this month will eliminate the need for employees to pay an additional lump sum at the year-end to make up for the shortfall in monthly deductions.
Inland Revenue Board (IRB) chief executive officer Datuk Hasmah Adullah said that under the current system implemented in 2004, the board had on many occasions taken a big cut of the individual’s bonus to make up for the shortfall.
“We had cases where an employee’s entire bonus would go to the IRB (to make up for the shortfall). We do not want to do this any more as it is unfair to the taxpayer.
“It is better for us to make higher deductions every month. This is a better arrangement,” she said, adding that under new system, the taxpayer would have paid up almost all his dues by the end of the year.
She added that the new system would also allow for employees to submit their claims for rebates every month, along with a range of new reliefs.
Previously, the taxpayer was allowed to claim relief for himself, his spouse, their children, his Employees Provident Fund and insurance contributions, and zakat payment (if any), and claim other reliefs only when filing his returns at the end of the assessment year.
Under the new system, Hasmah said an employee can submit claims for rebates such as parents’ medical bills, purchase of a computer, tertiary education fees, medical check-ups, and book and sports equipment purchases to his employer every month using the PCB/TP1 form.
“When this is done, the tax to be paid for that particular month will be reduced automatically. This would practically be a real-time tax payment system.
“We want the taxpayer to benefit straightaway rather then wait till the end of the year,” she said.
She said under the new system, the employee could make monthly claims for 17 other reliefs announced in Budget 2009.
The employee, she added, would not have to submit receipts for the claims to the employer.
Among the new reliefs announced are for travelling allowance, petrol claims, parking fees, food allowance, caretaker fee, maternity and traditional medicine treatment (ayurvedic, acupuncture, etc) and subscription to broadband services.
She said taxpayers could submit their claims for rebates monthly, quarterly or twice a year.
Hasmah said employers who needed assistance on the workings of the new structure could enter the board’s website at www.hasil.gov.my and look for the schedular tax deduction (PCB) calculator icon.

Use EPF to Reduce Your Income Tax

The EPF (Employees Provident Fund) is a compulsory contribution for Malaysian employees and employers. Although foreigners are not required to contribute EPF, they can opt to contribute at the same rate as Malaysians. While the employees’ portion of contribution can be deducted as a relief from income for tax calculations, the employers’ portion is a tax-free income to the employees. It is this part of income that we want to concentrate in.

Employees have 8% (option to increase to 11%) of their salaries deducted and contribute to the EPF whereas employers pay 12%. Employers are allowed to contribute up to 7% more than the statutory rate of 12%, i.e. up to 19% under the Income Tax Act for employers to be able to deduct these contributions from the employers' taxable income. If an employer contributes more than 7% above the statutory rate, the excess is not allowed as a deduction when calculating the employers' income tax.

An employee can arrange for his/her employer to contribute 19% to EPF by lowering his/her salary. For example,

Original salary RM10,000 a month, Employer’s EPF (12%) RM1,200.
Cost of hiring to employer = RM10,000 + RM1,200 = RM11,200


The employee can ask his/her employer to consider paying less basic salary but increase the employer's contribution to EPF as follows :-


Adjusted salary RM9,412 a month, Employer’s EPF (19%) RM1,788
Cost of hiring to employer = RM9,412 + RM1,788 = RM11,200

So there is no difference to the employer, but for the employee, his/her taxable income is RM588 (RM10,000 – RM9,412) less a month, which is RM7,056 a year. If his/her tax bracket is at 27%, the tax saving would be RM1,905.12 a year !

Of course, the employee’s take home pay at the end will be less as well but the difference is credited into the employee's EPF account, which belongs to the employee anyway. The additional contribution to the EPF can be withdrawn for purchasing a house when needed, or as additional retirement fund when he/she retires.

For foreigners, they will be able to withdraw all the money they have in the EPF when they leave Malaysia, together with all earned dividends, tax-free.