Paying Tax: When your PCB Deduction is too little

After calculating your income tax payable for last year, you realise that your last year's Monthly Tax Deduction ("MTD") or Potongan Cukai Bulanan ("PCB") is insufficient to cover your actual tax liabilities. To your horror, you realise that you need to PAY TAX to cover the shortfall of deduction!!

What can you do?



As some of my friends and I found out in almost every April of past years (the income tax assessment submission deadline) that it is really painful to pay a few thousands more Ringgit of tax, instead of receiving a nice tax refund cheque.

Reasons (and explanations)

There are a few reasons why wrong estimation and under deduction of tax can happen.

One of the main reasons is that Human Resource Department decides on employees PCB deduction based on Schedule of Monthly Tax Deductions provided by LHDNM (Inland Revenue Board of Malaysia, or simply Income Tax Department). The schedule is the best estimation of your possible tax liability, payable monthly, based on a few criteria like salary range, spouse(s), number of children under 18, etc. It is not very accurate because your tax liability subjects to other factors like bonuses, incentives, Benefit-in-Kind (i.e. company car, allowance, etc.), etc.

Therefore, in every year before 30 April (for employee) or 30 June (for business owner) you still need to calculate your actual tax liability, to submit your tax assessment form and to pay shortfall of PCB deduction.

Solutions

So what can you do about it?

First, the bad news. You still need to pay the deduction shortfall to LHDNM. Taxes and death, remember? The two things that you can't avoid in life. And taxes come before and after death.

Second, the good news. You don't have to pay the shortfall in one lump sum. You can pay by installment. This is the right way:

• Submit your income tax assessment filing on time
• After the tax assessment filing, go to the LHDNM branch that keep your tax file. Bring along your tax assessment calculation and a photocopy of EA form, just in case your last year tax numbers are not in LHDNM's system yet.
• Explain to the tax officer that the shortfall is too much for you to pay in one lump sum, and that you would like to pay the tax by installment. The longest period given for installment that I have heard is 10 months.
• Be polite and keep a smiling face as your are asking for help. Generally, the tax officer is willing to help
• The officer will print out a letter for you to bring back to your HR Department
• Bring the letter back and give it to your HR Department to make monthly deduction from your salary

There are a few more things to note for individual tax payer:

• It may take a few months after the tax filing deadline for your last year numbers to appear in LHDNM's system. Therefore, may be, JUST MAY BE, you can go and see the tax officer a few months after the tax filing deadline (when the peak period for LHDNM is over) to negotiate for installment.
• A friend of mine went to see the tax officer 5 months after the tax filing deadline to negotiate for tax installment payment. 
• Just to explain further: you still need to submit your tax assessment filing on time. Just that you may have a little bit extra time, before you go to LHDNM branch, to negotiate with LHDNM officer for a longer tax payment period.

I believe there are laws or rules somewhere on penalty for late tax payment. However, Malaysia government is still lenient toward individual tax payers. At this point, for individual taxpayer, as long as you are willing to settle your outstanding tax (before they start to contact you) LHDNM still allows a longer tax payment period without penalty or interest charge.

Still using income tax form

I have to admit, it is so easy to submit tax using e-Filing now a day. LHDN did a good job on this.

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e-Filing 2007

There are several improvements in this year e-Filing that makes this web service from LHDN more usable:

1. If you have not used e-Filing last year, you don't have to go to LHDN branch to get your PIN number. The PIN number for you to download your digital certificate is at the second page of your Tax Form.
2. You don't need to fill up a PDF form. Last year the compatibility of PDF version did caused troubles to many people. The entire filing process is done in LHDN's e.hasil.org.my web site.
3. All calculations are done when you fill up the online form. You still need to do some calculations, i.e. total receipts for medical and education insurance premium, purchase of books, etc. But overall the auto tax computation function eliminate many unnecessary tables, rows and columns. The entire process is simple and the online form is clean.
4. You can save your work (press "Simpan dan teruskan") and exit (press "Keluar"), and to come back in few hours later to complete your tax works.

Off course there are still some minor problems:

1. LHDN, being an inflexible government body, still do not provide language option like English, Mandrin, Tamil, etc. They assume everyone who fill the tax form must know Bahasa Malaysia. I suspect they forget their role is to make tax submission easy. Residents are NOT the same as citizens. They are many foreign expatriates who are resident under tax law and who cannot read Bahasa Malaysia. I had to called my friend to ask some of the meaning of words, i.e. what is "papar" (regarding my Digital Certificate). It will be good if LHDN will provide multi-lingual tax form in the future. We are a country with lingual diversity.
2. The process of filling up the form, at times, can be really slow. May be this is due to last minute submission. However, LHDN should ensure sufficient capacity to deal with last minute submission.
3. eBayaran is a joke. Unless you have CIMB or Public Bank internet banking account, you will still need to physically go to your banks...errr...only for two more banks, i.e. Maybank2e and Hong Leong Bank, to register before using the eBayaran. I decided to physically go to Public Bank to pay my tax.
4. More explanations should be provided in the online form guiding those who are less financial savvy in filling up the form, i.e. what should be done in "isteri" form, if you choose "bersama atas name isteri", etc. (answer: add another RM3000 relief in your "isteri" form)

Overall, tax submission process was much improved this year. It should be the way to go for the future.

e-Filing: File your income tax return online

This is the first year the Inland Revenue Board (IRB) Malaysia introduces the use of online income tax return filing.

This is the steps to file tax return online.

Source: The Sun newspaper, 19 April 2006

Getting a digital certificate
1. Go to the nearest branch to obtain a PIN number. The PIN number is a 16 digit number sealed like a usual bank's credit card PIN number.
2. Log on to https://e.hasil.org.my/
3. Back up your digital certificate and password online by clicking the link "penyelengaran sijil digital" (digital certificate maintenance).
4. View or remove the certificate from the computer, open an Internet Explorer window and go to "Tools > Internet Options > Content > Certificates".

Keep your password confidential and remove the certificate if the computer you are using is shared by others. After registration, the pin number is no longer needed, instead you will use your password.

Using the BE Form
1. Download form from e-Hasil
2. Install form in your "program files" folder
3. Go to "Start" and select BE form to open the form. The PDF form requires Adobe Reader with, at least, Version 7.0.5. If your Adobe Reader is Version 6.0 you will need to download 20MB to upgrade the Adobe Reader to Version 7.0 and to download another 9MB to upgrade your Adobe Reader to Version 7.0.5. If you are using Broadband, it will take you slightly less than one hour to complete both downloads.
4. Fill in the form.
5. Click "cetak" to print, "export" to save the completed form to your hard disk, diskette or thumb drive.
6. Click "tandatangan dan hantar" to attach digital certificate and send form to the IRB via your internet connection.
7. You should receive immediate confirmation of receipt. If not, keep resending until you do.
8. Print and save confirmation.

Once submitted, error in the form cannot be corrected by sending in a second form. You will have to drop by an IRB branch to make the correction.

You can download the manual from e-hasil, call 1-300-88-3010 or email callcentre@hasil.org.my

Source: The Sun newspaper, 19 April 2006

Are you subject to Malaysian income tax?

There are two main factors in deciding whether you are subject to Malaysian income tax:
a. Whether you are resident of Malaysia (which depends on duration of your stay in Malaysia, regardless of your nationality or citizenship.)
b. Whether your source of income is from Malaysia or outside Malaysia.

Being a resident means, you have stayed 182 or more days in Malaysia during the assessment year (for individual it means the calander year).

1. If you are a non-resident and without source of income from Malaysia, you are not subject to Malaysian Income Tax. So even if you are a Malaysian working in Singapore with Singpore PR status and are travelling back often to Malaysia for holidays, most likely your stay in Malaysia is less than 182 days. So you are a non resident. Without an income source from Malaysia, you are not subject to Malaysia tax at all.

2. Even if you are a resident of Malaysia, your income from overseas, i.e. employment income, internet business income, dividend income from Singapore stocks, etc. are exempted from Malaysian Income Tax. You may want to declare it in your Tax return, but be careful of your calculation, these overseas incomes are tax exempted. You should not pay tax for your overseas incomes.

3. If you are a non-resident with source of income from Malaysia, you are subject to Malaysia Income Tax over the income source from Malaysia. There is a help book on Self Assessment System for Non resident from Lembaga Hasil Dalam Negeri (Inland Revenue Board) for download.

4. If you are a resident of Malaysia, and you have source of income from Malaysia...think what? Off course you have to pay tax.

Part 1: Malaysian income tax filing deadlines
Part 2: Malaysian income tax processes
Part 3: Are you subject ot Malaysian income tax?

Income tax processes

Where should you send tax return to?

Use the envelope comes with Borang BE or B that you should have received from IRB/ LHDN some months ago. The address is:

Lembaga Hasil Dalam Negeri Malaysia
Pusat Pemprosesan
Aras 10-18, Menara C, Persiaran MPAJ
Jalan Pandan Utama, Pandan Indah
Karung Berkunci 11054
50990 Kuala Lumpur

If you have not received the form from IRB/ LHDN, call the branch that keep your tax file and get a copy.

Like previous years, we may want to cross our finger and to look around popular shopping centres for IRB's helpdesk and tax return collecting counter.

And since there is no announcement, unlike last year, we should not send our tax return to the nearest assessment branches.

What should you include in the envelope for tax return?

1. DO NOT include payment in the envelope to Pusat Pemprosesan. Pusat Pemprosesan is meant to process Form/ Borang B or BE and to input information into IRB's database.

2. If your final tax liabilities exceed your schedular tax deductions and monthly tax instalments, this means tax paying position, you just need to include Form B or BE into the envelope.

3. If your schedular tax deductions exceed your tax payable (cukai kena dibayar), that you have overpaid your tax, beside Form B or BE you will need to include Form HK-3 and the original dividend vouchers into the envelope.

Payment
If you are at tax paying position, read the last page of Borang BE or B where you can find the postal address and collection counter's location. (The last page of Borang BE or B is Slip Pengiriman Bayaran (CP501). It is at the back of the Slip.)

You can also make payment through Bumiputra-Commerce Bank Berhad and Public Bank Berhad. Just walk in to the bank and ask the bank officer for appropriate bank-in-slip for tax payment.

Yes, the deadline to settle the payment is 30 April 2006.

Refund
If you have overpaid your tax, write a letter to the assessment branch for refund. As far as I know there is no deadline for them to pay you back. So remember to call the IRB officer who in charge of your file.

Part 1: Malaysian income tax filing deadlines
Part 2: Malaysian income tax processes
Part 3: Are you subject ot Malaysian income tax?