What is Potongan Cukai Bulanan?
In Malaysia, the Monthly Tax Deduction (MTD), also known as Potongan Cukai Bulanan (PCB), is a system where employers deduct income tax from their employees’ salaries on a monthly basis.
This mechanism ensures a more manageable tax payment process for employees and facilitates timely tax collection for the government.
Basis of MTD Calculation:
The calculation of MTD is primarily based on the employee’s residence status and monthly remuneration:
Resident Employees:
For employees who are residents of Malaysia, the MTD is computed after accounting for all allowable deductions under the Income Tax Act (ITA) 1967. These deductions can include personal reliefs, contributions to the Employees Provident Fund (EPF), insurance premiums, and other eligible reliefs. The specific MTD amount is determined using the computerized calculation method provided by the Inland Revenue Board of Malaysia (LHDN).
Non-Resident Employees:
For non-resident employees, the MTD is calculated at a flat rate of 30% of their total monthly remuneration.
This means that 30% of the non-resident employee’s monthly income is deducted as tax.
Minimum Salary for MTD Applicability:
The requirement to deduct MTD is contingent upon the employee’s income level:
Annual Income Threshold:
Individuals with an annual employment income exceeding RM37,333 are subject to income tax and, consequently, MTD deductions.
Monthly Income Threshold:
While the annual threshold provides a clear guideline, in practice, MTD deductions typically commence for employees earning a monthly taxable income between RM3,000 to RM4,000.
This range accounts for various factors, including allowable deductions and reliefs, which can affect the taxable income calculation.
It’s important to note that these thresholds can vary based on individual circumstances, such as additional sources of income, applicable reliefs, and other factors influencing taxable income.
Employers are advised to utilize a payroll solution such as JustLogin for the latest MTD calculation schedules and tools provided by LHDN to ensure accurate deductions.
For detailed guidance on MTD calculations and the latest tax information, employers and employees should refer to the guidelines provided by the Inland Revenue Board of Malaysia.
