Amendment to deduction from remuneration rules

Amendment to deduction from remuneration rules

The Income Tax (Deduction from Remuneration) (Amendment) Rules 2023 [P.U.(A) 230], gazetted on 31 July 2023, take effect from 1 August 2023 and amend the Income Tax (Deduction from Remuneration) Rules 1994 [P.U.(A) 507].

The Income Tax (Deduction from Remuneration) Rules 1994 provide that the employer must determine and make monthly tax deductions (MTD) from employee salaries based on either the Schedule of MTD or the computerized calculation method. Since 1 March 2019, the MTD Schedule issued by the Inland Revenue Board (IRB) has been in electronic form, namely e-Jadual PCB which is available via e-CP39.

The amendments made via the Income Tax (Deduction from Remuneration) (Amendment) Rules 2023 [P.U.(A) 230] are to take into account the revised tax rates with effect from the year of assessment 2023, where:

a)    the tax rates for the chargeable income band from RM35,001 to RM100,000 are reduced by two percentage points

b)    the tax rates for the chargeable income band from RM100,001 to RM1,000,000 are increased by between 0.5 to two percentage points

Note that it was earlier stated that the new tax rates to calculate MTD came into operation on 1 June 2023, pursuant to the Finance Act 2023 (see Tax Alert No. 9/2023) and the IRB’s announcement on 1 June 2023. Since the Rules are only effective from 1 August 2023, clarification is awaited from the IRB on the consequences (if any) of over or under deduction of MTD for the months of June 2023 and July 2023 for employers who relied on the IRB’s earlier announcement in June 2023.