To quote Benjamin Franklin, “Nothing is certain except for death and taxes”…And though we don’t look forward to either of them… I guess taxes are the more preferable of the two inevitabilities! J
Yes, it is that time of year again, when employees prepare to file their “Borang BE” or BE Form. (Business owners file a different return, known as the “Borang B”).
Tax for Employee
In many ways, full time employees are the least privileged group of taxpayers. Why? Because unlike business owners who have a large number of deductions at their disposal, or those not earning a fixed income who can “self-declare” their earnings as they wish, full time employees do not have many options available to them to reduce the tax that they have to pay.
By law, their employers are required to deduct a huge chunk of tax from their earnings at source (that is, even before it is paid to the employee) and submit the relevant returns on their part. As a result of this, the employee is not given the option to self-declare his income.
It is already stated in the “Borang EA” prepared by the employer. The Inland Revenue Department will already know exactly how much you earned from your full-time employment, so it is highly unadvisable to claim something different from what is stated on your EA Form J.
What are your Options?
Notwithstanding, there are still some options available to you even as a full time employee, to reduce the amount of tax that you will pay. These are available in the form of tax reliefs for resident individuals. Here are some tips to help you, the employee, to prepare to take advantage of these tax reliefs.
- Tax relief
Firstly, familiarize yourself with the tax reliefs. You may download the list for the any given taxable year, from the Inland Revenue Board’s website at www.hasil.gov.my. Amongst these are reliefs for self and dependents, medical expenses for parents, basic supporting equipment, education fees, medical expenses for serious diseases, medical examinations, purchase of books, journals, magazines and publications, purchase of computers, purchase of sports equipment, life insurance and EPF deductions, medical insurance, etc.
Be sure to go through the list carefully and understand what does and what does not constitute a valid deduction. Also, be sure to take note of the limits under each heading.
For example, even if you have spent RM 2000 on books for any given taxable year and have all the receipts to show for it, it does not mean that you can claim the entire RM 2000 as a tax relief.This is because the prescribed limit for the tax relief on the purchase of books, journals and other materials, is set at maximum RM 1000.
- The Receipts
Secondly, once you are familiar with the available tax reliefs, start collecting and collating receipts that fall under one or more of the prescribed headings. It is probably a good idea to get yourself a plastic folder with multiple pockets, and label each pocket according to the individual tax relief you intend to claim.
For example, pocket 1, “Parents medical expenses”, pocket 2, “Books and Journals”, pocket 3 “Sports equipment” and so on and so forth.
- File Regularly
Here’s the not-so-good news; for this filing system to work effectively for you, you need to file your receipts regularly. It is no point having your receipts scrunched up in your wallet or scattered over your desk for weeks and months on end, with the result that you have to spend a week trawling through the mess of bits of paper lying here and there, trying to make sense of it all, several days before your tax returns are due.
Instead, it is a much better idea to come up with a system to organize and manage your tax filing project that works for you from 1st January up to 31st December of any given calendar year.
One suggestion is to have an empty box on your desk into which you place all your receipts on a daily basis. Once a month, go through the box, file your tax receipts in your plastic folder, and dispose of anything for which no claim can be made.
Being disciplined about spending half an hour to 1 hour a month on this, will save you a huge amount of time and stress nearer to the submission date! J
Once this system is in place, you should have no trouble organizing your receipts for your tax relief claims, once the month April rolls around every year. All you need to do is to take out your file, remove the receipts that you have filed under the various headings, and add up the totals in a spreadsheet. You’ll either be claiming a specific RM value, or if the total in your receipts exceeds the limit set by the tax authorities, you can just claim up to the limit. Next, input the data corresponding to the relevant tax relief into your online tax form and voila! The online form auto-calculates all your deductions for you! J
Hopefully, these tips will be helpful to you in preparing to be able to claim the maximum in terms of allowable tax reliefs. You would usually receive payment of any excess owed to you by the Inland Revenue Board, within a few weeks/months of the date of submission of your tax returns.
A final word of advice
Don’t get too excited and claim every single deduction for which you have receipts in hand, to the point where the Inland Revenue Board ends up owing you thousands of ringgit.
Let us just say that this sort of practice has been known to result in tax files being “audited” by the Inland Revenue Board. Being audited is a highly unpleasant experience that no one would wish to go through, even if you have kept your receipts for seven years as you are supposed to. Instead, it is wiser to just claim for a reasonable amount.