Tax reliefs that are often overlooked
Lim Siew May 
Not many employees are taking advantage of monthly tax deduction, which eases the burden of collecting receipts, filing taxes and possibly topping up payment in April – 123RF

Smart tax moves may not sound as sexy as doubling your capital from a hot stock pick, but they still offer some relief to your cash flow and save you troubles with the tax authorities.

PwC International Assignment Services Sdn Bhd executive director of global mobility Hilda Liow points out that a lack of tax awareness can be attributed to not complying with tax laws, not making right claims, or making excessive claims.

“On one hand, if you don’t maximise claims, you can lose out on thousands of ringgit. On another hand, if you file your tax wrongly, such as making excessive claims, the consequences can be significantly higher,” she says.

‘Obscure reliefs’ such as expenses for parents and medical needs are often overlooked, says Liow

With two more months before the end of year of assessment (YA) 2017, two practitioners highlight some underutilised tax reliefs and steps you can take to optimise tax payable.

Liow says our tax list can be grouped into three categories, namely, status and family-type reliefs, life and medical, as well as expenses to enhance technology, knowledge and lifestyle.

“Obscure reliefs” such as expenses for parents and medical needs are often overlooked, she adds. “Lately, this was introduced as carer expenses. People overlook that as it goes under the broad heading of medical treatment. Carer expenses also come within that category, but people don’t realise that,” she explains, citing a RM1,500 tax relief for each parent introduced last year, which can be shared among siblings.

Another recent change stipulates that a single parent can claim child-related reliefs such as disabled child relief, medical education and insurance claims.

“The reliefs do not apply to just a family; a single parent can also make such claims. The authorities are trying hard to broaden the concept of family and modern lifestyle,” she explains.

VKA Wealth Planners Sdn Bhd licensed financial planner Sunny Chai points out that commonly-overlooked tax reliefs also extend to contribution to the Social Security Organisation (Socso) of up to RM250, net savings in the National Education Savings Scheme (up to RM6,000) and contribution to an approved private retirement scheme (up to RM3,000 from YA 2012 to 2021).


Pay attention to new tax reliefs

Chai foresees some taxpayers not claiming newly-introduced tax reliefs for YA 2017 due to lack of awareness. These include breastfeeding equipment (maximum of RM1,000, which working women with children of up to two years old can claim every two years), and fees paid to childcare centres or kindergartens (up to RM1,000).

Some taxpayers may also overlook the new lifestyle tax relief of up to RM2,500, which has been expanded to include new categories such as newspapers, smartphones and tablets, internet subscriptions as well as gymnasium membership fees.

This is in contrast to tax reliefs for only three distinct categories previously: books/reading materials (up to RM1,000), sports equipment (up to RM300) and personal computer (up to RM3,000, claimable every three years).

“Now, an individual taxpayer can use the tax relief when he buys a new smartphone, not just a new computer. Besides, the internet broadband relief was abolished in YA 2012. By reintroducing it under payment of monthly bill for internet subscription, vis-a-vis the new lifestyle tax relief, a taxpayer would be encouraged to buy a smartphone with a data plan,” Chai says.

Similarly, the purchase of books and reading materials (which previously excluded newspapers) was always overlooked by individual taxpayers in the past. “The trend now is purchasing reading materials in the form of e-books or online newspaper subscriptions. With the new lifestyle tax relief, an individual has more room to utilise the relief,” he says.

Liow shares a similar view. She believes the new lifestyle tax relief is a good move by the tax authorities. In her view, Malaysia has the longest list of tax reliefs, and by lumping some into one big group, the tax authorities have eliminated small value reliefs that people need to claim, she says.

“With this new lifestyle relief, if you’ve already spent RM2,500 (under this category), you don’t have to worry about (other) tax reliefs. If you look at it previously, for sport equipment, the tax relief was only RM300, and I could only claim if I could find the receipt,” she says. “Categorising it makes it easier and more meaningful for a taxpayer to make a claim. The authorities, too, don’t have to focus on something as small as a RM200-300 claim,” she explains.


Monthly tax deduction

Liow also points out that not many employees take advantage of using the monthly tax deduction (MTD), or potongan cukai bulanan, as the final tax, a ruling that was introduced in Budget 2014.

Under this mechanism, if an employee-type of taxpayer doesn’t file his tax by April 30, it automatically assumes the monthly tax as the final tax. This eases the burden of collecting receipts, filing taxes and possibly topping up payment in April, which many taxpayers are not keen to do so, says Liow.

As it is, she notes that many taxpayers have the shoebox mentality of putting all their receipts in a shoebox and only sorting them out at year-end.

Under the MTD ruling, employees are also entitled to claim tax reliefs by informing their employers of their tax reliefs through Form TP 1, so that the total MTD payment is a more accurate representation of their final tax.

Liow attributes the lack of communication to the general public as one of the key reasons that MTD as the final tax is not widely accepted. “The education on MTD as the final tax is ongoing. I’ve seen many employers who are starting to communicate with employees to increase the take-up of making claims through the MTD system.

“Some employees could also be hesitant to share private information that is necessary for making such claims with their employers.

“Also, employers find it administratively burdensome to start allowing employees to make claims through Form TP 1. It is now a requirement for employers to extend this option to employees at least twice a year.

“The TP 1 Form stipulates that employers must accept submissions from employees, and ensure claim reliefs (made by employees) through MTD will be filed at year-end. MTD is aligned with what professionals are pushing for, which is the simplification of tax administration,” she notes.

If you decide to elect MTD as your final tax for YA 2017, it is still not too late. You can submit your TP 1 Form to your employer by your company’s December payroll cut-off date, says Liow.

“You can aggregate your 2017 claim and put in a TP 1 Form for any of the remaining payroll months in 2017. TP 1 does not require substantiating receipts. Your employer only needs to sight your TP 1 Form claim amount to put it through the system. As a taxpayer, you need to retain your receipts for seven years, in the event the tax authority performs an audit on you,” she explains.

In terms of tax liability, MTD is similar to the estimated tax computation under the conventional tax filing method whereby the submission deadline for employees is April 30.

“You’re effectively paying as and when you earn, rather than having to file a tax return, topping up tax and receiving refund tax at year-end,” says Liow.

On the downside, not everyone is entitled to take advantage of MTD. “Say, if you have rental income to report, you cannot elect for MTD. This is only for people who receive employment income as their sole source of income,” she says.

Liow adds that an individual may elect not to furnish a return for a year of assessment if he meets the following criteria:

• receives an employment income;

• his employer has made deductions through MTD;

• is employed by the same employer within the year of assessment;

• his tax is not borne by his employer; and

• he and his spouse have not elected for combined assessment.

Empowered to make better informed decisions

With technology, we are more empowered than ever to make tax-savvy moves. Aside from enlisting the services of tax agents, taxpayers can always log onto the official website of the Inland Revenue Board (IRB) to review their eligibility for various tax reliefs, suggests Sunny Chai, a licensed financial planner with VKA Wealth Planners Sdn Bhd.

Hilda Liow, executive director, global mobility of PwC International Assignment Services Sdn Bhd, concurs. “It’s the taxpayers’ responsibility to know all the tax laws and the system now because we are under a self-assessment system,” she says.

“Taxpayers should read up on the IRB website, where new announcements are made. They can also download current brochures to maximise tax reliefs and study three explanatory notes that come with tax returns. The information is in English and Bahasa Malaysia. IRB officers have open desks for enquiries, so you can go to their office and speak to them.”

This article first appeared in Focus Malaysia Issue 257.