Let's talk about Taxes (and Reliefs)

Malaysia operates under a progressive tax system that gradually charges more as your income increases.

*This newsletter has been released 3 days early for patrons.

This Week at a Glance…

i) How do Taxes in Malaysia Work?

If your annual income is RM47,000 per year, will you get taxed 6% on the entire amount?

ii) Is investing in PRS worth it?

The retirement scheme offers an RM3,000 tax relief to reduce your overall taxable income, but how did the funds perform?

ii) Failed to claim your eMadani credits?

It could be because you did not file your income taxes before June.

Scroll down to read the details.

Versa’s 4.3% pa campaign has come to an end.

The new rate is 4.0% pa.

As usual, you would have to maintain a minimum of RM1,000 in Versa Cash or Versa Cash-i to earn the promo rate.

Any balance above RM30,000 will continue to earn the base return rate, which was 3.93% pa for Versa Cash and 3.36% pa for Versa Cash-i in November.

If you have RM60,000, you can split them equally into Versa Cash and Versa Cash-i to enjoy 4% returns on the entire sum.

Versa’s return is still quite competitive compared to other cash apps.

How Taxes Work in Malaysia

Taxes in our country are progressive. This means that you’ll gradually pay more as your income increases.

For instance, if your gross income is RM47,000 per year, you will fall into the 6% tax bracket (before tax reliefs).

When calculating your gross income, it’s important to note that you should factor in all sources of income except those that are exempted from tax.

These include your basic salary, bonuses, tips, hourly wages, rental income, etc.

So, based on the table below,

  • Your first RM5,000 will not be taxed.

  • The next RM15,000 will be taxed 1%: RM150.

  • The following RM15,000 will be taxed 3%: RM450.

  • The remaining RM12,000 will be taxed 6%: RM720.

Total taxes: RM150 + RM450 + RM720 = RM1,320 (without tax reliefs)

Now, assuming that you managed to receive RM12,000 in reliefs this year, your chargeable income will drop to RM35,000.

In this case, you’ll save RM720 in taxes.

To add on to that, you’ll get an RM400 tax rebate if your taxable income is not more than RM35,000.

So in total, you’re only required to pay RM200 to LHDN.

This is why maximizing your tax relief is always a good option.

Speaking of reliefs, as long as your salary is above the minimum wage, you’re guaranteed to receive the RM4,000 tax relief from EPF every year.

In addition to the initial RM4,000 (which covers both mandatory and voluntary contributions), there is another RM3,000 tax relief specifically for voluntary contributions.

This was announced by EPF recently to encourage citizens to increase their retirement savings and is separate from the tax relief for PRS.

What about PRS? Is it worth it to invest?

If you’re currently using Versa, you probably would have seen a ton of ads regarding PRS.

From 1-31 December, Versa is allowing users to earn 12% pa nett returns for their first RM10,000 in Versa Cash if you deposit at least RM3,000 into Versa PRS.

In case you’re unfamiliar, PRS is a retirement fund to grow your future savings and further reduce your taxable income.

Similar to EPF, your money will be locked until 55.

However, unlike EPF, pre-retirement withdrawals are only limited to a portion of your funds and may be subject to an 8% tax depending on the purpose of withdrawal.

There are annual management fees and sales charges, plus the investment returns are not guaranteed.

So, you may lose money if the funds underperform.

PRS funds really depend on the provider.

Some funds offer higher returns compared to EPF’s average annual return of 6%.

In the case of Versa’s PRS, it would seem like a good idea to deposit RM3,000 to max out your tax reliefs and enjoy the 12% pa nett reward from Versa Cash (which adds up to RM100 if you deposit on 1 December).

However, do note that the funds’ performances are mediocre at best.

There is also an annual management fee of 1.30%, a trustee fee of 0.04%, and a flat PPA fee of RM8 annually.

The PPA fee is waived during the first year and any year without contributions.

IMO, the first avenue to reduce your taxable income is through voluntary EPF contributions, since EPF has a strong track record and they are required by law to return at least 2.5% every year.

“I failed to claim my eMadani credits. Why??”

To be eligible for eMadani credits:

  • You must be a Malaysian.

  • You must be 21 years or older.

  • Earn an annual income of RM100,000 and below based on LHDN’s record as of 15 July 2023.

The last part may be overlooked by those who have not filed their taxes before this period.

Even if you decide to do your taxes now, it is already too late to receive the eMadani credits.

Still, regardless of your income, it is advisable to file your taxes so you won’t miss cash handouts in the future.

Reporting them also helps make it easier for you to apply for loans, visas, and demonstrate your financial standing.

For those with an annual income above RM34,000, failure to file your taxes is an offence.

There will be a 10-45% late interest charge depending on how long you've delayed the payment.

You may also be fined up to RM20,000 or face imprisonment of not more than six months.

Even after the deadline has passed, you’ll still have to report them.

Fortunately, LHDN is allowing you to submit your taxes with no penalties or charges until May 2024.

The voluntary disclosure will be accepted in good faith and no investigation or audit will be performed.

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That’s all for this week’s newsletter!

DISCLAIMER: The information contained in this newsletter is for informational and educational purposes only. Nothing herein shall be construed to be financial, legal, or tax advice.

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