It’s that time of the year again where most Malaysians will be rushing to complete their income tax claims from the previous year. This can be a rather daunting experience for some of us as we probably have no idea on where to even start. What’s worse is, you can make a mistake or forget to declare something—which carries some pretty serious consequences.
Before we look at some of the ways you might end up paying MORE than what you will for your taxes—let’s look at some updates to tax payment in 2020. If you didn’t already know, your Employees Provident Fund (EPF) contributions are actually tax-deductible up to RM4,000. This basically means you may be taxed for your EPF contributions in Malaysia.
But starting April 2020, the employees’ contribution rate to EPF will be reduced from 11% to 7%—as part of the Economic Stimulus Package that was announced by the previous government. Now this might bring some changes to tax payments made for EPF contributions, but if you’d like to stick to the 11% rate, you’ll have to fill in Borang KWSP 17A (Khas 2020)—that will only be made available on EPF’s website in the near future.
Now that we’ve caught up with the updates, let’s take a look at what happens if you try and avoid paying your taxes:
You’ll be fined 300% more than what you owe
Evading taxes or not declaring it is an offence punishable with a fine of RM1,000 up to RM20,000 on top of an additional 300% of the amount you tried to avoid in the first place. Needless to say, that’s probably more than the amount you’ll be taxed in the first place.
Section 114 of the Income Tax Act 1967 states:
So anyone who tries to avoid paying tax will be guilty of committing an offence, carrying the penalties mentioned earlier. The Tax Act also goes on to list some methods of evasion, whereby making a false statement or entry can make you liable under the Act. So it’s best to try and avoid any sort of mistake at all costs when it comes to filing your taxes.
A good starting point to note is, if your annual income is less than RM34,000 you’re not required to pay any tax. But if you do earn enough to be taxed and now the deadline to file your taxes are getting closer, we decided to list out five common mistakes tax payers may make in Malaysia.
1.Not having your documents handy
To those of you who plan to file your taxes via e-Filing, here’s a tip on what are the documents you’ll need to be prepared with while filing your taxes online:
- Income details/statements – EA form, dividends rental, pension, royalties, etc.
- Reference details – MyKad, Passport, Marriage, or Tax number.
- Your EPF statement
- Receipts/Invoices – To claim for reliefs, rebate, & exemptions.
The e-Filing method is one of the easiest ways to file your taxes, since most things are already automated for you and it helps save time and energy. But of course, if you like to do things the old school way, there is no harm doing it the manually either. Regardless of how you plan to file your taxes, one thing needs to be there – your pin number.
For first time tax payers, the Inland Revenue Board of Malaysia, or better known in Malay as the Lembaga Hasil Dalam Negeri (LHDN) has made it a requirement to get the pin before starting your tax filings. The pin can be obtained from the nearest LHDN office or the Urban Transformation Centre (UTC). Also, there are no charges or payments that need to be made to obtain the pin.
Once you’ve gotten your pin, you can proceed to log into the e-Filing form and fill in your personal details. And for those of you who’ve been filing taxes every year and may have forgotten your pin or passcode, you can choose to either retrieve it via email by just following the procedures on the site or call up the LHDN headquarters.
2. Filling in the wrong EA form
There is a possibility for tax payers to make a mistake on filing the EA form because there is not one but...several different EA forms that differ with your source of income and residential status.
The deadlines vary with accordance to the type of form you fill in. Most of the time, Malaysians are required to fill in forms that fall under (1) and (2).
So, here’s a list to help you understand which category might apply to you:
- Those who own and run a business – Form e-B/B: Deadline 30th June 2019
- Employers who run a company/business – Form e-E: Deadline 31st March 2019
- Partnerships – Form e-P: Deadline 30th June 2019
- Those who do not run a business and are employed – Form e-BE/BE: Deadline 30th April 2019
- Non-residents who are employed and/or run their own business – Form e-M/M: Deadline 30th June 2019
- Those who are experts or specialize in a certain skill – Form e-BT/BT: Deadline 30th April 2019
- Non-residents experts or specialize in a certain skill – Form e-MT/MT: Deadline 30th June 2019
The non-residents forms apply to foreigners who do not have a Malaysian citizenship/permanent residence but reside and work in Malaysia. With all these different forms, one can sometimes get confused on which one would be the most suitable. If you ever do stumble upon this issue, you can always call up the LHDN hotline number: 1-800-88-5436.
3. Not knowing what your tax reliefs and deductions are
Before we go on, it’s important to clarify that there is a slight difference between an income tax deduction and an income tax relief.
An income tax deduction is a result of gifts and donations to charitable organisations or Government organisations. For example, if you donated RM5,000.00 to an orphanage to raise funds, only 7% of your chargable income will be deducted from your overall annual income. However, do note that there will need to be a documentation of evidence to prove that the transactions took place. This can be via receipts and invoices, for example.
A tax relief on the other hand is when your obligations to pay tax are either reduced or eliminated entirely. Most taxpayers are entitled to an exemption on their tax returns, which reduces the amount you have to pay in your tax filings. However, tax reliefs are subjective and can vary an individual basis.
Below are some of the exemptions given to tax payers:
So, another reason why filing your taxes online is somewhat better is because...most of it is automated on the site! All you have to do is declare the right thing and know what your reliefs/deductions are in order to avoid paying more. For instance, you could have spent on your education or bought a new wheelchair for your ailing grandma. The extensive list for this is laid out in the official Inland Revenue Board Of Malaysia’s site for reference.
4. Not paying any outstanding balance
Sometimes, we may have missed out something while filing up our taxes and this might cause a sense of anxiety in some. However, it isn’t too late to pay the Inland Revenue Department even after submitting your taxes.
But take note: This is different from NOT declaring your taxes in the first place, as mentioned earlier.
So let’s just say you have two jobs and one of it happens to be a contract based job. You only remembered this after filing your taxes, and now you’re wondering if you can still declare it. There is still a chance for you to do it as soon as you can. So in circumstances like this where you have an outstanding payment to make, you can always settle it by paying through FPX (online banking), at the nearest ATM or over the LHDN counter.
But, what if you have overpaid your taxes? This is also yet another reason why we’re urged to file taxes earlier as you can receive any refunds earlier too (if you have any). Also, when you file your taxes via the e-Filing method, the Inland Revenue Department would directly deposit any refunds that are available directly into your bank account. The refunds are usually credited within 30 days after the income declaration is made.
So it’ll be like getting money ang pau from the LHDN...only thing is...it’s still your money. *Cries internally*
5. Misplacing receipts for income tax declaration
We never know how important getting a receipt is until you have to file your income taxes. Section 82A(1) and (2) of the Income Tax Act actually requires us to keep our receipts for at least 7 years. Remember how we talked about tax reliefs/deductions earlier and on how it’s important to keep our receipts, which will come in handy when you’re declaring your taxes?
The receipts are basically proof that you’ve performed the transaction and you are eligible for the relief that you’re supposed to get.
Further under Section 119A of the Act, the offence of not keeping paper records for 7 years is a criminal offence, which carries a sentence of one year imprisonment and/or a fine of RM300.00 – RM10,000.00. So, it’s best to just keep your important receipts for as long as possible just in case you make a mistake somewhere down the line. This is simply because there isn’t a timeline for certain tax offences and the tax officials can come after you way after you’ve filed your taxes too.
So in cases as such, keeping receipts as proof can be a way to show that you may have made an honest, genuine mistake and you can avoid being criminally charged. The LHDN actually does a random audit check once in a while to check on the proof of the claims. In circumstances like that, receipts and documented evidences come in handy.
Start filing early and save the headache
Basically, the golden rule is to start on your taxes as soon as possible. Think of it as, doing your assignments and having to submit it on the deadline...and you still want that A Grade. It’s almost the same when it comes to taxes. Missing the submission deadlines can lead to a very heavy penalty with a fine not less than RM200 but not more than RM20,000 or a jail term not exceeding six months or both.
Therefore, submit your tax returns to the LHDN by 30th April (for manual filing) and 15th May via e-Filing for individual tax calculations. For those who carry out businesses, the deadline is 30th June.
If you’re reading this article after the tax season...we hope you’ve filed your taxes correctly for this year, but do take note of all the common mistakes that may happen for your future reference.
So, get started early and happy taxing! :)