What are the latest Personal Income Tax goodies announced for the year of assessment 2021 (YA2021)?
In my last article, I briefly discussed the 6 categories of personal income tax reliefs that you can take advantage of before the year ends. In this article, I will be zooming in on the personal income tax goodies for YA2021 onwards. These enhancements were proposed as part of the Malaysia Budget 2021.
The materials for this article are extracted from PWC’s TaXavvy Budget 2021 Edition (Part 1) and Deloitte’s Tax Expresso (Special Edition).
The personal income tax goodies…
- Income tax rate (for chargeable income RM50,001 to RM70,000)
- Expenses on medical treatment, special needs and parental care
- Medical expenses for the treatment of serious illness
- Disabled spouse
- Private retirement scheme (“PRS”)
- Lifestyle expenses
- National Education Savings Scheme / Skim Simpanan Pendidikan Nasional (“SSPN”)
- Education / Study fees
- Compensation for loss of employment
- Non-citizen individuals holding key positions in companies investing in new strategic investments
- Returning expert programme (“REP”)
- Reduction in Employees’ Provident Fund (“EPF”) Contribution Rate
- EPF Account 1 withdrawal
1) Income Tax Rate
The resident personal income tax rate reduction by 1% (from 14% to 13%) for the chargeable income band RM50,001 to RM70,000. This is depicted in the table below.
Effective: YA2021
2) Expenses on medical treatment, special needs and parental care
Resident personal income tax relief on medical treatments, special needs or carer expenses for parents increased from RM5,000 to RM8,000.
Effective: YA2021
3) Medical expenses for the treatment of serious illness
Medical expenses for self, spouse or child undergoing treatment for a serious disease or expenses incurred on fertility treatment increased from RM6,000 to RM8,000. The limit includes expenses incurred by self, spouse or child for complete medical examination which is also increased from RM500 to RM1000.
The scope of qualifying expenses is expanded to include expenses incurred on the cost of vaccination, up to RM1,000. Type of vaccine includes Pneumococcal, Human Papillomavirus, Influenza, Rotavirus, Varicella, Meningococcal, Combination of tetanus, diphtheria and acellular pertussis (Tdap), and COVID-19 vaccine.
Effective: YA2021
4) Disabled Spouse
Additional tax relief on disabled spouse increased from RM3,500 to RM5,000.
Effective: YA2021
5) Private retirement scheme (“PRS”)
Personal income tax relief of RM3,000 for PRS contributions and Deferred annuity scheme premium extended for another 4 years. The personal income tax relief is currently applicable from YA2012 to YA2021.
Effective: YA2022 to YA2025
6) Lifestyle expenses
Currently, a resident individual taxpayer is eligible to claim income tax relief up to RM2,500 on lifestyle expenses incurred on the purchase of reading materials, printed daily newspapers, sports equipment, computer,
smartphone or tablet, subscription of broadband internet, and gymnasium membership fee.
The relief of lifestyle expenses will be increased from RM2,500 to RM3,000, where the additional RM500 be allocated for the cost of purchasing sports equipment, entry/rental fees for sports facilities and participation fees in sports competitions. In addition, the scope of relief for printed daily newspapers will be expanded to include subscription of electronic newspapers.
Effective: YA2021
7) National Education Savings Scheme / Skim Simpanan Pendidikan Nasional (“SSPN”)
Existing personal tax relief of RM8,000 on net annual savings to SSPN extended for another 2 years.
Effective: YA2021 to YA2022
8) Education / Study fees
Presently, an individual taxpayer who pursues any course of study in selected fields, or Master or Doctorate in any field offered by institutions or
professional bodies in Malaysia recognised by the Government of Malaysia or approved by the Minister of Finance are eligible to claim a maximum of
RM7,000 tax relief on study fees. The eligible fields of study are as follows:
The scope of relief expanded to cover fees for attending upskilling and self-enhancement courses in any field of skills up to a limit of RM1,000 for each year of assessment. The field of skills must be recognised by the Department of Skills Development, Ministry of Human Resources.
Effective: YA2021 and YA2022
9) Compensation for loss of employment
Section 13(1)(e) of the Income Tax Act 1967 provides that compensation received for loss of employment is taxable on individuals. However, individuals with loss of employment are eligible to claim for exemptions provided under Paragraph 15(1) of Schedule 6 of the Income Tax Act
1967 under the following circumstances:
- 100% tax exemption on the compensation for loss of employment due to ill health; or
- RM10,000 income tax exemption for each full year of service with the same employer or companies within the same group.
The exemption limit increased from RM10,000 to RM20,000 for each full year of service. This is a much needed relief for taxpayers who lose their jobs due to the current COVID-19 pandemic.
Effective: YA2020 and YA2021
10) Non-citizen individuals holding key positions in companies investing in new strategic investments
Currently, resident individuals are taxed on progressive rates ranging from 0% to 30%, while non-resident individuals are taxed at a flat rate of 30%. Individuals who fall under the following categories are taxed at a preferential tax rate of flat 15%:
- Malaysian citizens who return to work in Malaysia and are categorised as experts and approved under the Returning Expert Program (“REP”);
- Individual knowledge workers in Iskandar Malaysia; and
- Individual knowledge workers in Malaysia-China Kuantan Industrial Park.
Under the PENJANA, the Government announced tax incentive of 0% income tax rate for a period of up to 15 years for manufacturing companies that relocate their operations to Malaysia.
With the proposed Budget 2021, individual income tax at a flat rate of 15% be given to non-citizens holding key positions / C-Suite positions for a period of 5 consecutive years. This tax incentive is limited to 5 non-citizen individuals employed in each company that has been granted relocation tax incentive under PENJANA initiative. To qualify for the flat rate of 15%, an individual must:
- Receive a monthly salary of not less than RM25,000; and
- Be a Malaysian tax resident for each year of assessment throughout the flat-rate tax treatment.
Effective: Applications received by Malaysian Investment and Development Authority (“MIDA”) from 7 November 2020 until 31 December 2021
11) Returning expert programme (“REP”)
To further encourage skilled Malaysian citizens working abroad to return and work in Malaysia, the application period for REP incentive will be extended for another 3 years:
- a flat rate of 15% for a period of 5 consecutive years of assessment; and
- exemption on import duty and excise duty for the purchase of a Complete Built-Up (“CBU”) vehicle or excise duty exemption for the purchase of a Complete Knocked-Down (“CKD”) vehicle subject to the total duty exemption limited to RM100,000.
Effective: Applications received by Talent Corporation Malaysia from 1 January 2021 until 31 December 2023
12) Reduction in Employees’ Provident Fund (“EPF”) Contribution Rate
The employee’s portion of EPF contributions will be reduced from 11% to 9% for a period of 12 months from January 2021. The proposed changes are depicted in the table below:
Effective: 1 January 2021 to 31 December 2021
13) EPF Account 1 withdrawal
This item is not exactly a personal income tax goodie but relevant nonetheless. This is extracted from TheEdgeMarkets’s Budget 2021 highlights.
EPF now allows members with Account 1 savings of not more than RM100,000 to withdraw up to RM10,000 under its expanded i-Sinar facility. Payouts will be staggered over a maximum period of six months. The first payment can be as much as RM5,000.
For those who have more than RM100,000 savings in Account 1, they can withdraw up to 10% of their savings or up to RM60,000, whichever is lower. Similarly, the payouts will be on a staggered basis over a maximum period of six months. The first payment can be as much as RM10,000.
The eligibility criteria have been somewhat loosened since the i-Sinar facility was first announced in November 2020. Previously, the facility was limited to those that have lost their jobs, are on no-pay leave or have no other source of income.
Personally, unless absolutely required, I will not encourage anyone to touch their retirement funds for two reasons. One, withdrawing the funds will disrupt the power of compound interest at work on your retirement fund. Read here for more details on the power of compound interest. And two, you still have to replenish your Account 1 as soon as your situation improves.
Summary
With the COVID-19 pandemic affecting the Malaysian economy, many are affected financially and struggles to provide food on the table or education for their children.
The proposed Malaysia Budget 2021 is welcomed and timely as it includes many additional personal income tax reliefs to assist Malaysians to tie through the pandemic.
It is hoped that the Malaysian economy will be resilient and able to assist all Malaysian to pull through this crisis that is affecting the whole world.