Tax relief plays an imperative role as taxes are imposed by the government of almost every country.Almost, because, in countries like Bermuda, Bahamas and the United Arab Emirates, there are no income taxes. In Malaysia, however, the regulation of taxes is mainly enforced by the LHDN (Lembaga Hasil Dalam Negara) or the Inland Revenue Board of Malaysia (IRBS). It officially became a Board on March 1, 1996.
LHDN has many functions including collecting and enforcing payment and income tax, petroleum income tax, real property gains tax as well as stamp and estate duties. Other than that, it also provides advice to the government on tax matters and communicates with other relevant bodies on these matters as well. On a global scale, it represents Malaysia regarding tax matters and may also collect loan recovery payments.
So, what is LHDN empowered to do? Simply put, it has the power to participate in initiatives which foster a better understanding of taxes both locally and internationally; to collect fees for its services; to grant loans and also to facilitate recreational opportunities and training for its employees.
So, why must we pay taxes?
Now that we know what LHDN does, what is our part in paying taxes? It is good to know that the Government uses our taxes to pay for the well-being of the country such as for security, the building of schools, roads and also services such as healthcare and education. As for who is deemed taxable, that would be any individual who earns income in Malaysia according to the current tax rate and these individuals will be entitled to tax reliefs according to the Income Tax Act 1967. So, for YA 2021, if their annual income is more than RM34,000 after EPF deductions or more than RM32,800 before EPF deductions, they need to file their taxes and pay their income tax if needed.
Making the most of your tax refunds
Each year, when tax season comes around, we all want to ensure that our tax returns are as favorable as possible. Hence, it is good to be aware of the tax deductions, rebates and reliefs that you are eligible for. Below are some of the main tax deductions that you should be aware of for Year of Assessment (YA) 2021.
Types of Tax Relief
Self, Parents and Spouse
This includes automatic individual relief where the amount claimed can be up to RM9,000. Also included are medical expenses for parents where the claimed amount can be up to RM8,000. This covers treatment by a nursing home as well as dental treatment. For husband/wife/alimony, this is applicable if your spouse has no income. For alimony purposes, the amount claimed can be up to RM 4,000.
For this category, you can claim relief for your education if you are studying at a recognised institution. This includes those studying for their Masters and Doctorate degrees. You can claim up to RM 7,000.
You may claim up to RM8,000 for medical expenses for serious illnesses affecting yourself, your spouse or your child. Illnesses include AIDS, Parkinsons, cancer, leukemia, heart attacks, tumors in the brain or major burns. This category also covers fertility treatment and medical examinations. Vaccinations for COVID-19, influenza, HPV and other types of vaccinations are also included.
This relief includes books, magazines, newspapers, personal computers, smartphones, sports equipment and internet subscriptions. You may claim up to RM2,500 for these services and products.
This category is inclusive of breastfeeding equipment, child care fees, child relief, child over 18 years of age in full-time education and tertiary education. Child care fees up to RM3,000 can be claimed for those with children below 6 years of age enrolled at a registered centre or kindergarten. Child relief of up to RM2,000 per child can be claimed for those unmarried under the age of 18. Additionally, for those who have savings in the SSPN (National Education Savings Scheme) for their child’s higher education, they can claim for the net deposit in the savings up to the amount of RM8,000.
Insurance and Investment
For this relief, one can claim up to RM7,000 for life insurance premiums and EPF. Also under this category are Private Retirement Schemes (PRS) for the amount of RM3,000. For medical insurance premiums, the claim is up to RM3,000. SOCSO claims are up to RM250.
For Disabled Persons
This includes equipment for disability of up to RM6,000 for wheelchairs, hearing aids, hemodialysis machines and other equipment. There are specific deductions for disabled individuals, disabled husband or wife and disabled child.
There is a deduction of up to 10% of aggregate income for donations to charities and other projects including donations to the COVID-19 fund. Moreover, other gifts and contributions can also be claimed such as money to the government, libraries or disability facilities. Lastly there are deductions for membership subscriptions paid to professional bodies.
Property taxes – what you should know
There are 4 types of property taxes in Malaysia. It is good to be well-informed and educated on all the types and how it will affect the buying, selling or maintaining of your property.
Types of property tax
SPA Stamp Duty (Memorandum of Transfer)
This is imposed when purchasing a property. It is based on the price of purchase where for the first RM 100,000 the duty is 1%; for the next RM400,000 it is 2%; and for those above RM500,000 the duty is 3%.
This is based on the annual rental value of your property, fixed by local authorities. The rate is usually around 6%.
This is a local property tax imposed and is based on 1 to 2 sen per square foot. Each state is different and may also differ in terms of the location of the property.
This is applicable to Malaysians and permanent residents who have sold property within 5 years of purchase. So where disposal of property is in the first year to the third year, the RPGT rate is 30%; in the fourth year the rate is 20%; and in the fifth year it is 15%.
RPGT in detail – what is its significance?
RPGT is imposed by the LHDN and is classified into 3 categories:
Citizens and permanent residents
This type of tax was first implemented in 1995 and has undergone several changes since then. One of the provisions under this tax was carried out in January 2022 where citizens and permanent residents selling their property in the 6th and subsequent years of owning that property did not have to pay 5% RPGT. RPGT is only applicable if there is a profit gained from the disposal of the property.
Tax relief in COVID-19 recovery phase through PENJANA
What is PENJANA? It is an initiative by the Government to restore the country’s economy with three objectives in mind:
1) To empower people
2) To propel businesses
3) Stimulate the economy
Especially in light of the COVID-19 pandemic, under PENJANA, there have been several exemptions in terms of taxes that were put in place for the recovery period. Of importance were the exemptions for property owners where the stamp duty exemptions were given to the first RM1 million of the property value.
Other exemptions during this phase included 100% tax exemption on local cars sold. Other sectors that benefited from PENJANA are the tourism sectors and new businesses as well as for COVID-19 related purchases.
Property tax – pertinent issues
Every time tax season approaches, many panic and this may lead to them missing out information or filing taxes incorrectly. Since 2018, income on rentals are decided based on a tax rate which ranges from 0-30%.
The tax incentives for rentals include:
cost of repairs for maintaining the property
assessment tax and quit rent
rent collection fee, cost to renew or change tenant
maintenance fee for properties with strata titles
To claim these exemptions, one must have the legal tenancy agreement. Some things to note are that the exemptions do not include advertising fees and legal fees or stamp duties as well as real estate agent costs.
Other tax reliefs to expect in 2022
As we return to some sort of normalcy after the COVID-19 pandemic and its aftermath, we resume our work and businesses in the usual course to the extent possible. However, while we are still experiencing the bitter aftertaste of the pandemic, we have some consolation in the tax reliefs that we can enjoy in 2022. Other than the property tax reliefs listed above, these are sure to perk you up and get you going!
What you can benefit from:
Now you can take that much-awaited vacation you’ve been dreaming of! Whether you like golden sand beaches or cooling hilltops, you can now claim up to RM1,000 for your travel expenses including flight and accommodation and entrance fees.
You are entitled to RM2,000 for courses that are for self-enhancement and skill-upgrading. For those interested in Accounting, Finance or ESG, you may claim up to RM7,000 for these professional courses.
Yes, you may claim up to RM1,000 in medical check-ups or consultations for yourself, your spouse or child. This makes going to the doctor a breeze and you don’t have to be bogged down for services that are critical to your health.
Devices such as smartphones and computers are essential in this day and age. So, with this exemption, you can claim up to RM2,500. You can now work or enjoy your leisure time utilising these devices without worrying about the cost.
If you contribute to SOCSO, you may claim up to RM350. Previously this was set at RM250. Hence, the government has provided this increased exemption to private employees who continue to contribute to this scheme.
A final word on taxes and tax relief
In conclusion, paying your taxes is a very substantial part of your responsibility as a citizen. We can be assured that our tax money is put to better and develop our country, which is for the common good of all its people.
Additionally, paying taxes positions oneself as a law abiding citizen and it emphasises one’s civic duties as a citizen of the country. Also, we know that the tax money is going to worthy causes such as for children’s education and other public services.
Of course, there may be exemptions from taxes on services such as health insurance, medical equipment and the plethora of products and services. Aside from that, we may be eligible for a tax refund from the government depending on our income and expenses.
As for tax reliefs in Malaysia in particular, it is essential to go over the guide to paying taxes in Malaysia and be certain that we are paying taxes correctly and filing for the right exemptions.
It may not be such an ominous task after all… It is up to us to stay informed, educated and aware of tax payments in the country and to know the kind of tax reliefs that we are entitled to.