Before monthly tax deduction (MTD) was introduced, it was the responsibility of employees to ensure that, whenever due, income tax is paid from their employment income.
When MTD was introduced, as far employment income is concerned, it became the employers’ duty to ensure that employees’ pay income taxes from employment income drawn from them. Specifically, employers are to, on a monthly basis, deduct income taxes from employees’ monthly employment income, and then remit those deduction to LHDNM by the 15th day of the following month (e.g., the MTD from January 2023 pay must be remitted to LHDNM by 15 February 2023).
This does not excuse employees from their duties to meet their income tax obligation or to file their tax returns. Employees duties as taxpayers stands as it is. However, employers are to deduct and remit MTD wherever applicable. Failure to do so will lead to unpaid income tax becoming the employers’ debt to the Government of Malaysia, and thus the company, as well as individuals who served as directors at the time, become liable to pay.
Step 1: Deduction
Deducting income done during the payroll processing. In involves calculating the total monthly net remuneration.
Total monthly net remuneration refers to any pay received as income, as in money earned as part of regular employment or business (including overtime and commission).
Therefore, reimbursements (which are money paid back for spending), allowances (money paid by employers to be used for particular purposes, not as income) and other statutory deductions (EPF, SOCSO, and EIS) must be deducted from the monthly pay first.
In order to derive the MTD amount applicable to an employee, you need to refer to the latest Table of MTD, published periodically by LHDNM (at https://www.hasil.gov.my/en/employers/mtd-schedular/), as shown in the sample below.
On the sample table, tax payers are divided into three (3) categories, which are: single (category 1); married and the spouse isn’t working (category 2); and married and the spouse is working (category 3). Under Categories 2 and 3, rates are further fivided into how many children does the taxpayer has at the time. The more children one has, the lesser the amount income tax would be. On the left hand side taxable income brackets.
In order to derive the correct amount, you need to find the bracket on the left-hand side that your employee’s total monthly net remuneration fall in. Once that is found, find the amount based on the employee’s marital status and number of children.
In order to derive the correct amount, you need to find the bracket on the left-hand side that your employee’s total monthly net remuneration fall in. Once that is found, find the amount based on the employee’s marital status and number of children.
In order to derive the correct amount, you need to find the bracket on the left-hand side that your employee’s total monthly net remuneration fall in. Once that is found, find the amount based on the employee’s marital status and number of children.
Step 2: Remittance
After the deduction is done, you may proceed with submitting the MTD Statement to LHDNM via e-Data PCB (https://eapps.hasil.gov.my/) / e-PCB (https://ekls.hasil.gov.my/) / eCP39 (https://ecp39.hasil.gov.my/login).
You may remit payment in any of the following channels:
Step 3: EA Form
Steps 1 and 2 are to be performed monthly. Step 3 is perfomed only once a year. Income tax are assessed yearly. For individuals, the Year of Assessment (YA) is from 1 January up until 31 December of the same year. So YA2022 starts on 1 January 2022 and ends on 31 December 2022.
Step 3 involves the issuance of the EA form to every employee who has earned income from your company in a YA by 28 February of the following year.
For example, to employees and ex-employees who have drawn wages from you in YA2022, you must issue each with respective EA form (with pertinent details, especially MTD) by 28 February 2023.
Explore our comprehensive HR & Payroll Series for expert insights and strategies to optimize your processes and ensure compliance:
Alternatively, learn how you can leverage our expertise with our comprehensive HR Consultancy and Payroll Outsourcing Services.
