Malaysia's 2018 Budget was announced in October 2017 by then-Prime Minister Najib Razak. The budget focused on domestic investment and providing for future generations by encouraging a more inclusive distribution of wealth. The budget includes several statutory changes relevant to the tax and payroll obligations of businesses operating in Malaysia.
Key highlights include:
Tax Rates
A tax reduction of 2% has been introduced for mid-range taxpayers, across three chargeable bands:
| Chargeable Income (RM) |
2017 Rate |
2018 Rate |
| 20,000 - 35,000 |
5% |
3% |
| 35,001 - 50,000 |
10% |
8% |
| 50,001 - 70,000 |
16% |
14% |
The rate reduction is projected to generate individual savings of between RM300 and RM1,000.
Employees’ Provident Fund
Monthly statutory employee contribution rates to the EPF have reverted to 11% (from 8%) - effective from the wage month of January 2018 (for the contribution month of February). Employees previously contributing at the 8% rate will have seen payments revert to 11%.
EPF contribution rates for employees over 60 years of age reverted to 5.5% (from 4%). Employees wishing to contribute more than the statutory rates should fill in Form KWSP 17A (AHL), or Form KWSP 17AA (AHL) in order to do so.
Employee Insurance System
The Employment Insurance System (EIS) was introduced on 1 January 2018. Administered by the Social Security Organisation (SOCSO), the EIS provides a number of benefits for employees who lose their jobs - including financial support, advice and counselling, and work placement programmes. Employers who implement EIS contributions should consider the following:
- The EIS monthly contribution rate is 0.2% for employees and 0.2% for employers (effectively RM1.90 for a wage of RM1,000).
- The maximum monthly EIS contribution is RM15.80 - corresponding to a wage cap of RM4,000.
- EIS coverage applies to all employers with at least one employee, and all employees regardless of wage amount.
- Contributions exclude employer payments to pension, social security and provident funds, travel allowances, special expenses, retirement gratuities, and annual bonuses.
- Self-employed workers, domestic servants, public sector workers, and non-Malaysian workers are not covered by the EIS. Nor are workers younger than 18, or older than 60 years of age.
- All SOCSO-registered employers and employees are deemed to also be EIS-registered.
Social Security Cash and Chequeless Campaign
From 2 January 2018, most of Malaysia’s social security organisations, including the EPF, PERKESO, and PTPTN ceased accepting employee contributions by cash and cheque. Employers must now use Malaysia’s E-payment system to submit contributions.
For more information about Malaysia’s business and tax landscape, check out activpayroll’s dedicated Malaysia Insight Guide.
