Every April (or earlier!)
you’ll probably receive this EA form from your HR department
In this form,
you’ll see all the different types of incomes that you’re taxed on,
as well as some deductions for EPF and SOCSO.
If you’re like most Malaysians,
your income tax has already been deducted from your salary every month.
All you need to do is file your form without worrying about all those terms and numbers.
Easy-peasy.
But what if you’re an independent contractor
or have a part time job on top of your regular job?
How do you calculate your tax?
The truth is,
you should know how this is done even if it’s already automatically calculated.
After all,
it’s your money.
Before that,
it’s useful to know the different tax types out there.
There are one-time taxes like your GST or SST and stamp duty,
as well as annual taxes like income tax,
property Assessment and Quit Rent.
Now let’s get to the fun part: mathematics!
First things first:
you need to know what amount your tax will be levied on.
So let’s say,
‘income’ for personal income tax includes salaries, leave pay, commissions, benefits,
bonuses, gratuities, allowances, and even certain types of compensation;
while ‘income’ for corporate income tax includes earnings,
profits from dividends, interest, royalty and so on.
Quit rent and property assessment are both annual property taxes,
but one is based on the size of your land while the latter is based on your annual rental value.
You can find this information easily by going to the website of your local land office for quit rent,
the Selangor Department of Lands and Mines and local council,
Petaling Jaya Council for assessment tax.
Secondly,
you need to know whether you qualify for any exemptions, tax reliefs, or deductions.
Some individuals may be exempted from paying tax
if their income falls below the minimum,
or if they’re part of a tax exempted group
such as women returning to work after a career break.
For goods and services,
you’ll need to know if what you’re paying for is subject to any consumption tax
or whether it is part of a list of items that are zero rated or tax exempted.
Just like your base value,
you can find these information easily at the royal Malaysian customs departments’ website.
And last but not least
and this is actually the most important part
what is your tax rate?
The amount of tax that is levied on different groups of people also depends
on whether it is a progressive, proportional, or regressive tax.
What does it mean?
Well,
a Progressive tax is one where heavy income earners pay more than low-income earners.
For Malaysian residents,
different income brackets are charged a different percentage,
while those who earn less than the minimum are not taxed at all.
A Proportional tax is one where everyone is charged a fixed rate.
If the income tax rate is 10%,
Person A who earns RM 250,000 will pay RM 25,000;
and Person B who earns RM 25,000 will pay RM 2,500
Most non-residents in Malaysia pay a proportional income tax.
And then there’s Regressive taxes.
Here,
someone who earns less may pay a higher rate than someone who earns more.
Take most sales taxes
everyone pays the same percentage on their purchases.
Let’s say,
person A and person B both buy a RM1,500 laptop,
but Person A earns RM7,500 and Person B earns RM2,000.
If the sales tax rate for their purchases is 6%,
it makes up only 1.2% of Person A’s salary but 4.5% of Person B’s!
The moral of the story? Spend within your means.
Again,
you can find personal income tax rates at the Malaysian Inland Revenue Board’s website.
Now, here’s where the magic happens.
To get your payable tax amount, simply do this calculation.
And there you have it!
There may be slight variations to these formulas,
but with these basics in your back pocket, you’re ready to conquer the world of tax calculations.