A full tour of personal tax reliefs: why does he earn more and pay less?

Hook

Two colleagues sitting in the same office. One earns more than the other, and at year end pays less tax. Not evasion, not connections — one word: reliefs. Today we walk through Malaysia's personal tax reliefs and see which ones you have been missing.

What a relief is: declaring your life

First get one thing straight: you are not taxed on your total income. Total income, less the various reliefs the government recognises, leaves your chargeable income — and the tax is worked out on what is left. So what is a relief? It is the government saying: "These living costs, I accept." Whether you are married, how many children you are raising, whether you support your parents, whether you bought insurance, whether you had a medical check-up. Filing a tax return is really declaring your life. Declare that life completely and the tax comes out right.

The subtraction for the salaried, and for the business owner

Here the subtraction differs for the salaried and for those in business. On a salary, the pay is what it is, and the only layer available to you is personal reliefs. In business there is an extra layer: first the business expenses come off in the business accounts — the line from the third lesson, money spent for the business — to arrive at the business profit, and only then do the personal reliefs apply. A complete tax return does both subtractions. Plenty of bosses do the business layer and leave the personal layer entirely empty, which means using only half their entitlement.

The grand tour of reliefs

A quick walk through them all. Every item has a cap, and the figures are revised every year, so use our estimator for the current year's numbers. For yourself — lifestyle: books, phone and computer, sports; the annual medical check-up and dental, which many people do not know exists; and your own life and medical insurance. For the household — a spouse who qualifies attracts a relief; children have their own: a child still in kindergarten or childcare has a dedicated one, and one who has reached university attracts more. The government's treatment differs at different stages of raising a child. For the generation above — your parents' medical and care expenses, the most commonly missed item and the most humane one. For your future — EPF, private retirement savings and education savings all save you tax while you are contributing. One item missed is money handed over for nothing — and many of them expire with the year and cannot be recovered.

The answer: why he pays less

Back to the puzzle we started with: why does the one earning more pay less? Because with the same life, he declared it properly. The insurance policy was claimed. The children were declared. The parents' medical bills were kept. The check-up was done and claimed. The other one? None of it — the government is not charging him more, he simply is not taking what is his. Tax planning, stripped of the mystique, starts exactly this simply: put the money you are already spending into the boxes it belongs in.

To close

Want to know how many items you missed? The LTT personal income tax estimator walks you through the reliefs one by one, with the current year's caps built in, and by the end you will know that everything claimable was claimed. Pair it with the Tax Pulse from the last lesson and you can also see how much was missed in earlier years. Grab a coffee and talk about your tax. For the accounting, come to LTT. I am LTT, helping SME bosses get their accounts straight. Follow us, and see you next time.