Why the fuss with PCB deductions 2009 ?

PCB deductions used to be a simple tax collection process imposed by the IRB. How much is your income for a month, follow the table provided by the IRB, follow the amount of estimated income tax payable and that amount is deducted from your monthly salary and remitted to the IRB.

At the end of the year, you receive the Borang EA from your employer and you calculate how much actual tax you have to pay, taking into account the relieves you have, claims, exemptions, rebates, etc and you fill up the Borang BE, send to the IRB and pay the difference between your actual tax and the total PCB deducted for the year.

If your total PCB deducted for the year is higher, then you get a refund from the IRB.

However, things get really complicated since January 2009. The PCB table is changed, calculation of PCB become totally impossible without a payroll software, TP1, TP2, etc.


Why has the PCB turned into something so complicated ?

The reason is this: The Malaysia IRB wishes to follow its counterpart is Singapore in implementing a system where all salaried employees will not have to file their tax returns (Borang BE) in future.

Refer to the Singapore’s Straits Times report on 7 May 2009 below.

http://www.straitstimes.com/Breaking%2BNews/Singapore/Story/STIStory_373767.html

The system will make the PCB a Final Tax, as opposed to an Estimated Tax as at now.

We are in the first year that the IRB is gearing towards this system. That is why there are so many teething problems and adjustments needed. How long more before the IRB can fully implement the Final Tax via PCB system is yet to be seen.

Rebates to be Deducted Monthly ?

The following article appeared in The Star newspaper on 6 August 2009.

Thursday August 6, 2009
Taxpayers can now have rebates deducted monthly

KUALA LUMPUR: The Schedular Tax Deduction (STD) scheme has been reviewed to enable the deduction of rebates and relief to be done on a monthly basis, Inland Revenue Board chief executive officer Datuk Hasmah Abdullah said.

Previously, she said rebates and relief were only taken into account when taxpayers claimed for it when they filed their income tax returns annually.

“By deducting on a monthly basis, we can have real-time payment of taxes due,” she said, adding that this was in line with the agency’s policy to provide the best service to the public by emphasising on accuracy of information.

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If I refer to the Borang TP1 now, there are already columns to state your rebates for :-

1. Zakat paid (Column D1)
2. Fees/Levy for employment permits paid (Column D2)

The only other rebates not stated is the personal rebates for those taxpayers with Chargeable Income of RM35,000 or less.

However, this rebate would have been taken into account when the employers input the data from Borang TP1 into their payroll system. The payroll system would have incorporated the personal rebates into their calculation to generate a new PCB deduction amount.

This is yet another confusing statement made by the IRB and picked up by the media without any substantial impact on the employees.

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.