Income Tax Law

i)         Malaysian prime minister, Datuk Seri Najib Razak announced the revised Budget 2016 on January 28th 2016. The budget is aimed at strengthening Malaysia’s economic resilience, upholding the welfare of the nation and easing the cost of living of the citizens.^[1] There were several key issues that were stated in the budget relating to individuals and small and medium enterprises. 3 of the key issues will be discussed in this report:

Issue 1: Personal Income Tax Rates

With effect from 1st January 2016, certain changes were made to the personal income tax rates structure. The marginal tax rate for resident individuals under the RM 600,001 to RM 1,000,000 chargeable income bracket was increased by 1 percentage point from 25% to 26%. Meanwhile, for resident individuals under the chargeable income bracket exceeding RM 1,000,000, the tax rate increased by 3 percentage points from 25% to 28%. At the same time, the non-resident individuals’ fixed income tax rate was also increased by 3 percentage points from 25% to 28%. These changes were implemented in order to enhance the progressivity of the individual income tax structure.^[2] This means that high-income earners will now pay more in tax.^[3][pic 1][pic 2]

[pic 3]

[pic 4]

Figure 2: Increase in tax paid by resident individuals 2

Issue 2: Personal Income Tax Reliefs

Effective year of assessment 2016, the Malaysian government has implemented several changes in income tax reliefs in order to reduce the burden of its citizens. These changes not only assist in reducing the cost of living but also aids the middle income earners in improving their well-being2:

To assist the individual tax payer whose spouse has no income and/or pays alimony to his/her former spouse, the tax relief entitlement is increased from RM 3,000 to RM 4,000. Besides that, the government has also implemented a new tax relief to help those who are caring for elderly and/or infirm parents. Under this scheme, individuals are eligible to claim a tax deduction of RM 1,500 each for a mother and a father. This deduction can be shared amongst siblings provided that the total claim does not exceed the given amount. Next, to lighten the cost of raising children, tax relief for parents with unmarried children below 18 years of age has been increased from RM 1,000 each to RM 2,000 each. Besides that, in order to alleviate the cost of their children’s tertiary education, the government has also increased the tax relief from RM 6,000 per child to RM 8,000 per child for an individual resident tax payer whose children are above 18 years of age and are pursuing a tertiary education. Meanwhile, in order to encourage life-long learning and to surge the nation’s talent pool, individual taxpayers who are pursuing a tertiary education can now claim a tax deduction of RM 7,000 as opposed to RM 5,000 in 2015. Lastly, to encourage more employees to contribute to the social security protection scheme (SOCSO) and to relief their financial load, the government has implemented a tax relief of up to a maximum of RM 250 per year on the contribution to SOCSO.^[4]