IRB: Obtain your Tax Settlement Letter when out of work

The revenue board has taken on more aggressive audits in a bid to widen its tax collection, which is expected to rise 13.8% to RM174.4b this year

by SHAHEERA AZNAM SHAH / Pic by TMR FILE PIX

UNDERGOING unemployment has never been an easy stretch of time, should it be out of personal preference or the surrounding pressures.

The Covid-19 pandemic has disrupted the global economy and sent countries into recession, which has contributed to the rise in unemployment rates.

Domestically, Malaysia chartered its highest unemployment rate since 1993, or in 27 years, as it rose to an average of 4.5% last year.

Since the beginning of the pandemic, the domestic labour market has been challenged by the rising numbers of new individuals entering the market amid a volatile and unstable economy.

The statistics of the labour force in Malaysia showed that the number of persons who were actively looking for jobs stood at 647,400 in February, 9,800 less than 657,200 recorded in January.

As a result, the dwindling number of contributors in the local labour market has put more pressure on Malaysia’s Inland Revenue Board (IRB) in collecting taxes.

The revenue board has taken on more aggressive tax audits in a bid to widen its tax collections.

This year, the government has taken into account Malaysia’s tax collection into the country’s projection of higher revenue, which is expected to increase by 4.2% to RM236.9 billion.

Tax collection alone is expected to increase by 13.8% to RM174.4 billion, of which the direct tax collection is projected to constitute 55.7% of the total revenue.

Unemployment and tax filing

Should an individual be taxed under IRB’s Monthly Tax Deduction (PCB), it means that he or she is registered with the revenue board and is obliged to report annual income and pay taxes, if any, to the IRB.

However, there have been instances where individuals complained to the revenue board that they are still being asked to file their taxes even when they no longer have a source of income due to various reasons.

Employment could be terminated by resignation, retirement, having left the country for more than three months or death.

If a person has not applied for a Tax Settlement Letter (SPC) from IRB, it means that there is no official notification that has been made to the revenue board to confirm that he or she is no longer working.

What is SPC?

SPC is an official attestation issued by the revenue board to employers concerning the income tax of individuals who are undergoing employment termination, retirement, leaving the country for more than three months or who have passed away.

According to Subsection 83(3) and (4) of the Income Tax Act 1967, employers in the public or private services are both required to inform the revenue board within the allotted period of retrenchment, deceased employees or employees who will be leaving Malaysia for working purposes.

This is to ensure that the amount of remuneration and benefits that the employees will enjoy after retirement or resignation is being assessed and obtained immediately.

Failure to report previous income before resignation can also lead to a reduction in the amount of remuneration and benefits.

Tax Compliance

Employees’ tax compliance record is an important component, which will be reviewed by IRB before the settlement letter is issued.

Employees have to make certain that income received through the current employment is being reported by submitting a Return Form (Form B, BE, BT, M or MT).

Individuals who only have income through employment and are taxed under the Monthly Tax Deduction can choose Final Tax as the deduction method where they no longer have to submit the Return Form to the IRB, effective from Assessment Year 2014.

Further information on the eligibility requirements on Final Tax can be obtained at www.hasil.gov.my> Legislation> Practice Note> Practice Note No. 1/2021: Service On Final Tax.

Employees must regularly check their tax compliance records with the IRB before their employers submit the SPC application, as well as keep records and tax documents for any income and relief claims made at least seven years prior.

Therefore, the IRB has advised the public to make sure that their tax compliance records are completed and organised every year.

SPC Application Exemption

Employers are exempted from submitting the CP22A and CP22B forms to the IRB if the employees’ income is not subjected to the Monthly Tax Deduction, or if the employees’ monthly remuneration is below the minimum amount eligible

for deductions under the conditions that the employees will continue to work or will not retire from any employment in Malaysia.

Meanwhile, Form CP21 is not needed if the IRB is satisfied with the justification that an employee is required to leave Malaysia regularly due to his or her employment.

Notification to IRB

For notification purposes, employers must use the forms provided by the IRB which are available at its official website, www.hasil.gov.my.

The completed forms must be resubmitted to the IRB branch which manages the employee’s income tax file or to the nearest IRB branch if there is no income tax number provided.

Everything at your fingertips

IRB has provided an online service to assist employers in submitting the CP21, CP22A and CP22B forms, which can be accessed on www.hasil.gov.my> MyTax> ezHasil Services> e-SPC.

SPC will be issued in accordance with the IRB Client Charter, which is within 14 working days from the date the CP21, CP22A and CP22B forms are received and subjected to receipt of complete documents and information.

SPC will also be sent to the employer and the employee will receive a copy of it for reference and record purposes.

The cooperation provided by employers and employees in the SPC application is very important to enable the IRB to process the application smoothly.

Employees are encouraged to know their rights and make sure that employers carry out their responsibilities to ensure that their tax matters are well managed.

Visit www.hasil.gov.my for more information.