How much is my monthly tax deduction? What is my personal income tax rate? These are common questions raise every newcomers when talking about income tax. Admittedly, the first time I set foot in Malaysia. I was very blur and clueless about income tax and monthly deduction not until I receive my very first check.
Before we go on the details of computing personal income tax. There are two key things to remember.
1. The Tax rates are progressive, that means you only pay the higher rate on the amount above the rate.
2. Tax rates are on chargeable income not salary or total income.
Chargeable Income = Taxable income - Tax Exemptions - Tax Reliefs.
Tax Exemptions - defined as a personal allowance or specific monetary exemptions which can be claimed by an individual to reduce taxable income.
Ex. Pensions, Scholarships, Interest, Dividend, Benefits in Kind
Tax Reliefs - On the other hand tax relief is the amount that can be deducted from individual annual income to reduce the amount on which tax is paid.
Ex. Self or Dependent relief, Medical Expenses, Purchase of ( books, journals, magazines, and publications) , Purchase of Personal Computer ( every 3 years), Life Insurance and EPF
More details on Tax Reliefs on LHDN site click here
LHDNM (Lembaga Hasil Dalam Negeri Malaysia) or Inland Revenue Board of Malaysia similar to BIR in Philippines governs tax revenue and collection in Malaysia.
The table below is based on annual computation, reference for year 2014.
Shall we begin computing your Income Tax?
Assume a salary of 7000 RM/ Month
7000 x 12 = 84,000
Don't go yet on the table above. Remember 84,000 is only taxable income not yet your chargeable income.
Recall on the formula.
Chargeable Income = Taxable income - Tax Exemptions - Tax Reliefs.
Taxable income - 84,000
Tax Exemptions - If applicable (usually none for Pinoys)
Tax Reliefs - Default is set to 9,000 (Self/Dependent), If you purchase Books, Magazines, or PC and contributed to EPF ( Employee Provident Fund)
EPF is calculated based on 11% from your Annual.
11% of 84,000 = 9240, but only 6000 be deducted since relief is only capped to that amount.
Let's assume your company contributed an EPF.
Chargeable Income = 84000 - 9000 Personal relief - 6000 EPF relief
Chargeable Income = 69,000
Looking at the table it belongs to 19% bracket. Again don't be carried away and directly took 19% of your Chargeable income.
Based on the Table
first 50,000 = 2850
next 19,000 * 19% = 3610
Total = 6460 ( Annual) or 538.8 (Monthly Tax Deduction)
538.8 is like 7.69% of the Monthly Salary
Let's Say No EPF Relief
Tax computation would be
Chargeable Income = 84000-9000
= 75000
Based on table above
first 70,000= 6650
next 5000 * 24% = 1200
Total = 7850 ( Annual) or 654.16 ( Monthly Tax Deduction)
654.16 is like 9.34% of the Monthly Salary
9.34% is way too low compare to our tax rate in the Philippines which is usually 30+% if talking on same amount of salary.
Hope this article helps you somehow how to calculate your tax and help you decide when considering a job opportunity here in Malaysia.
If you have questions, Please drop a comment below. More than happy to answer your query.
Note: The above computation is base as Malaysia Tax Resident for the year 2014.
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Labels: How to, Income Tax, Malaysia, OFW, Salary, Tax
