Malaysian Budget Update

On 23 October 2015, the Prime Minister and Minister of Finance, YAB Dato’ Sri Nohd Najib Tun Haji Abdul Razak unveiled the Malaysian Budget for the year 2016 (“Budget”).

The theme of the Budget is "Prospering the Rakyat (People)” and is premised on striking a balance between the capital economy and the "people economy", with the aim of achieving a competitive and progressive nation.

The Budget focused on five main priorities, namely strengthening economic resilience, increasing productivity, innovation and green technology, empowering human capital, advancing the Bumiputera agenda, and easing the cost of living of the people.

We set out below the highlights of the Budget:

Changes to tax withholding rates and extension of the monthly tax payment date

From January 2016 onwards the following changes will apply:

  • The tax rate for the chargeable income bracket of RM 600,001 to RM 1 million be increased to from 25% to 26% and that for the chargeable income bracket exceeding RM 1 million shall be increased from 25% to 28%. The non-resident individuals tax rate will increase from 25% to 28%
  • The deadline to submit tax payment has been extended from the 10th to the 15th of the following month

Action Required: Our Malaysian partner’s Payroll systems will handle these changes and we can confirm that no action is required from our clients

There are two changes to legislation which will require awareness and action from our customers:

Changes to the treatment of Benefits in Kind.

  • The Malaysian authorities have made changes to their definition of remuneration. Benefits in Kind (BIK) & Value of Living Accommodation (VOLA), a prescribed form allowing the employee to claim a tax rebate, will now be subject to monthly tax deduction (MTD), instead of year end declaration of the employees earnings (via forms E and EA).

Action required:

  • Please provide employee’s BIK & VOLA to activpayroll for payroll processing from January 15 onwards. We recommend that those responsible for Malaysia Payroll or HR to discuss this new requirement internally with the Finance and  Tax departments, with the aim of designing the process of providing this information for payroll processing on a monthly basis. Due to the relative short notice, you may target this exercise from Feb 2015 payroll onwards, the tax withholding will be reconciled in the Payroll.

Bi-annual submission of form TP1 by employee

  • From January 2016 all Malaysian employers must allow their employees to claim allowable deductions and rebates via form TP1, resulting in lower tax deductions, at least twice a year. Please note that it is the employee’s responsibility to ensure the accuracy of these claims and keep records and receipts for up to 7 years. The employer is obliged to process the amount submitted by the employee and is not responsible for the veracity or accuracy of figures submitted by the employee.

Suggested actions:

  1. Decide on a TP1 policy to answer the following questions: How many times will the employer allow TP1 submission per year (minimum two)? In which months of the year? What are the procedures and deadlines for the employees to submit Tp1 forms to HR?
  2. Discuss your new TP1 policy with activpayroll to ensure the process is understood and adhered to by all parties.
  3. Implement the new TP1 policies and inform your employees accordingly