LHDN E-Filing has become the preferred method of paying taxes regardless of whether one is paying taxes as an individual, a company or for one’s property.
Let us digress from the topic of e-filing for a moment. There are specific guidelines for each category. For instance, one might ask if they have to pay taxes on their rented property – the answer is yes! Many assume that earnings from residential properties or from non-business sources are exempted from tax. In truth, you could be fined if you don’t declare your rental income. But that’s another topic altogether. In this article, let’s look at e-filing in detail.
Over the years, e-filing has permeated the international tax community where the World Bank’s Doing Business website reported that 74 economies worldwide had fully incorporated electronic filing and payment of taxes by 2011. However, certain factors such as availability of internet access and electricity combined with the ability to use computers and awareness of e-filing mattered in the process of adopting e-filing.
Based on a 2020 report by an accounting firm, PwC, and the World Bank, it is noted that Asia Pacific “is among the most proactive regions in introducing online platforms for filing tax returns and payments which improves administration and compliance.”
Background of LHDN E-Filing in Malaysia
LHDN e-filing in Malaysia is the electronic method of filing Income Tax Return Forms (ITRFs) via the internet. In 2001, the tax policy was changed from the Formal Assessment System to the Self Assessment System (SAS). The concept behind the SAS was “Self Assess, File and Pay”. In line with its objective to increase tax collection and compliance, there was a need to come up with a simple method for taxpayers to submit their ITRFs. Hence, the Income Tax Act 1967 was adapted to allow tax forms to be done electronically.
This brought about the inception of e-filing in 2001 for companies and in 2004 for individuals. Through this, the customer service to taxpayers was improved; the process sped up; and LHDN was able to fulfil its mission and garner the confidence of the public while sticking to its motto of “EASY ACCURATE SAFE”.
Importance of LHDN E-Filing objectives
Without objectives, any new initiative or process will not last nor be efficient. One must have the future in mind when developing policies, especially those for the benefit of the public. These objectives will pave the way for the organisation to have a clearer focus on the way forward and what needs to be done in terms of improvements and amendments along the way.
Objectives of LHDN E-Filing
Ease
Essentially e-filing was put in place to make it easier for taxpayers to file their ITRFs. No more long lines and queues and excessive paperwork (plus no unnecessary paper waste!). Hence, filing and paying taxes are not so much of a burden anymore. Undoubtedly it is still a necessity, but it can be something not so foreboding anymore.
Speed
Now who wouldn’t want a process such as filing taxes, or getting a particular service for that matter, to be done quickly? Nowadays, everyone wants everything immediately, all at once! It’s hard to deal with long procedures when you are short on time or patience. So e-filing processing is now done with speed for the benefit of both parties.
Reduction of costs and space
Have you ever thought about how much storage space would be used for taxpayers’ documents altogether? This way, no more documents and no more wastage of space. Also, e-filing reduces management and operating costs. The process is smooth and supposedly entails less errors.
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All the factors above lead to one conclusion: Through these advantages, LHDN is able to provide quality service to taxpayers. Not only will this improve public trust, it will boost employee morale within the organisation through its good reputation.
What the numbers say
LHDN E-Filing statistics from the year 2006 to 2018 show that there has been a steady rise in e-filing submissions from 189,330 to 5,191,104. Also, according to an article in the News Straits Times dated May 11, 2022, it was reported that “IRB has received over 2.58 million Tax Return Forms for the Assessment Year 2021 from non-business taxpayers, of which, 96% or about 2.48 million forms were received via the e-Filing system.”
Who needs to file tax returns?
LHDN has determined that those individuals with earnings of at least RM34,000 a year after EPF deductions are required to pay taxes. However it may be a good idea to file taxes even if your income is less than RM34,000 a year. It is important to note that all income earned outside of Malaysia is exempt from taxation.
Guide to how taxes are calculated
Simply put, the formula here is:
Total income – Tax exemptions = Taxable income
Your total income will include all the income earned in the tax year. Any exemption will then be deducted from your income. These exemptions are quite like discounts you get for certain expenses you have incurred in the year.
Using LHDN E-Filing to file your ITRFs
Filing your income taxes through e-filing has never been easier and the process usually starts some time in March every year, or as determined by LHDN. This method has become popular with taxpayers because it is simple and intuitive. Your tax is calculated automatically and there is more time to file your taxes as opposed to doing it manually.
Steps to follow in LHDN E-Filing
Starting an application
If you have never used e-filing before, go to e-Daftar and click on the Daftar Individu button. Fill the form and upload necessary documents. Print and take the form to your LHDN branch near you where you will be given a login pin. Alternatively, you may get your pin online at the LHDN Customer Feedback website.
Logging in
Log in to MyTax with your pin using the First Time Login option. Then, create a new password which is easy to remember and one that is secure.
Starting the e-filing process
Select e-filing after clicking the menu on the left where it says ezHasil services. Then, click on the income tax form pertaining to the year relevant to you. For instance, an employer would fill out the E form; a resident who does not carry on business the BE form; resident who carries on business the B form, etc.
Updating personal and income details
Next step: Review your personal details and make sure everything is in order. You will also have to fill out your income details based on your EA form. Make sure you check that the total monthly tax deductions (MTD/PCB) are correct.
Understanding Tax Relief
Here you may declare your tax reliefs from the previous year. The orange boxes on your screen will list down the maximum tax relief for each category.
Checking your summary
After you have entered all your details including tax reliefs and rebates, your taxes will be automatically calculated and you will be able to determine whether you have an excess in your income tax payment
Declaring, sending and signing
Verify that all the information provided is true and click on the “Sign and Submit” button. You will be asked for your identification number and MyTax password.
Other important information
Make sure you file your taxes before the deadline set by LHDN. Also, do keep all your receipts of payments which you have declared as tax exemptions for the year. Under the Income tax Act 1967, in Section 82A, you are required to keep all receipts for up to 7 years from the date of assessment. Lastly, be honest in filing your taxes and exemptions to avoid being fined.
Questions you may have about LHDN E-Filing
Even though e-filing might seem easy and effortless, you might have questions about the process. Here are two queries you might encounter in doing your e-filing every year, along with their responses.
What if I made an error?
The first and most common question is: Can I make amendments if there is an error? The answer is: Yes! If you used e-filing, you may use the “E-Application for Amended BE” form after logging in to ezHAsil. If you are manually filing before the submission date, you need to write a letter stating the amendments along with proof such as receipts.
What If I changed jobs last year?
The process of e-filing remains the same for those who have changed jobs except it would involve getting EA forms from each employer and combining the income into one BE form. All you have to do is add up the amount from each category.
Advantages and Disadvantages of LHDN E-Filing
So, this whole article has been mainly about the good things about e-filing and how simple it is.. But to give you a fair and unbiased view, like everything, e-filing also has its disadvantages too. Of course, its advantages are more prominent, but it is good to note the following positive and negative aspects.
Advantages
An easy-to-use, adaptable tool
So, with e-filing, the task can be done anywhere at any time. No need to adhere to working hours only. This means that the probability of making mistakes is lower since one has the flexibility to schedule it at a time that is convenient for them.
Cost-effective and time-saving
The data goes straight from server to server – from the taxpayer’s server to the tax agency’s server. Also, it is easier to file e-returns as opposed to paper returns, not to mention that time is also saved, as one need not go through lengthy paperwork.
Here are some details on the comparison of manual forms as compared to efiling:
Manual forms take 30 minutes on average to fill while e-filing takes 5 to 10 minutes.
Submission for manual forms takes 3 to 7 days while e-filing takes less than 5 seconds.
Repayment can be done within 30 days while the manual method is in 90 days.
More accurate
Errors tend to be at a minimum with e-filing. Whether it is transmission errors or data errors, the whole process is more accurate. There are also less chances of manipulation of data which can be a major hindrance to the efficacy of the process.
Validity, accountability and authenticity
Through e-filing, the validity of the data submitted is protected. Also, both taxpayer and tax agency are held more accountable for the data provided as everything is computed and clearly noted in the electronic process.
Disadvantages
Technology and software
Inexperienced users of e-filing software may find it tricky, and its use is not always taught. Hence, it might be better if one gets advice on e-filing from a tax agent or an experienced professional.
Security issues
This is one of the biggest concerns of e-filing. One needs to rely on internet connection and software used as well as the security and storage of highly sensitive data. The system could crash or might be susceptible to hacking resulting in loss of data.
In conclusion
Overall, it can be inferred that LHDN E-Filing is beneficial to both the taxpayer and the tax agency. However it is still important to note that in the case of Malaysia and in many other developing countries, e-filing poses challenges as well as opportunities. Hence, one has to discern which method is most effective and accurate in filing their taxes. Another factor to consider is that all economies are now “going digital” and e-filing is now part of the wave of the future. One needs to keep abreast of technological changes and developments to keep up with the times.
