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