Setting Up Taxation

This chapter provides an overview of Malaysian income tax and discusses how to:

• Identify company tax details.

• Derive employee tax scales.

• Enter employee tax details.

• Set up benefits in kind (BIKs).

• Assign BIKs to an employee.

• Report tax data.

Note. The PeopleSoft system delivers a query that you can run to view the names of all delivered elements designed for Malaysia. Instructions for running the query are provided in the PeopleSoft Enterprise Global Payroll PeopleBook.

See Also

Understanding How to View Delivered Elements

Understanding Income Tax

This section discusses:

• Determination of the tax category.

• Determination of the tax scale.

• Determination of the tax method

• Determination of the taxable gross.

• Calculation of the tax.

Determining the Tax Category

The system uses the tax deduction table to determine which tax deductions apply to a payee. The table that is used depends on the payee's marital status, gender, and spouse's employment status. The system uses the formula TAX FM CATEGORY, data from Human Resources, and the Payee Details page to assign tax categories. This formula is referenced by the formula TAX FM INIT (INITIALIZATION TAXES), which is resolved first in the TAX SE CALC section.

Note. The system retrieves the tax category only when using the formula method of tax calculation.

Determining the Tax Scale

The system determines the appropriate tax scale by assessing the payee's eligible children. Applicable criteria are the child's age, student status, the child's marital status, and disability. The system uses the formula TAX FM DERIVE SC and data from Human Resources (including the Full Time Student and Student in Malaysia fields on the Update Dependent/Beneficiary page) to determine the tax scale.

Determining the Tax Method

To calculate taxes, the system can use either the tax scale method or the formula method which is also called the computerized calculation method. You make this selection by setting the variable TAX VR METHOD to S (scale method) or F (formula method).

When using the tax scale method, you can override the tax scale at the payee level by using the Maintain Tax Details MYS - Payee Details page. When using the formula method, you can override the category and number of dependents at the payee level by using the Maintain Tax Details MYS - Payee Details page.

Note. The system is delivered with TAX VR METHOD set to F.

Determining the Taxable Gross

The taxable gross is the amount in each pay period that the system uses to calculate tax liabilities.

Using the Scale Method

The payroll system calculates the taxable gross amount by subtracting all of the nontaxable earnings and pretax deductions and benefits from the total gross income. To accomplish this, the system uses TAX FM BASE and TAX FM ANN BASE, which use the regular gross amount and annual gross amount, respectively.

Taxable gross consists of three tax classes: regular tax (TAX AC REG GROSS), annual tax (TAX AC ANN GROSS), or previous year tax (TAX AC BASE PY).

Using the Formula Method

The payroll system calculates the income for the year subject to the tax, by performing the following calculation:

• Add the net income received up to the previous month including additional annual income.

• Add the income received in any previous employment.

• Add the net income for the current month.

• Add the projected net income for the remainder of the year.

• Add the annual income for the current month (only for the annual tax calculation).

• Subtract the optional and allowable deductions for the fiscal year.

• Subtract EPF (subtract no more than 6000 MYR per year).

To accomplish this, the system uses TAX FM COMP FL CLC which uses chargeable income for the year excluding the current month's annual income, and TAX FM CMP AN BASE, which uses chargeable income for the year including the current month's annual income. Segment gross, which contributes to the chargeable income for the year subject to the tax, consists of three classes:

• Regular income (TAX COMP REG GROSS).

• Annual Income (TAX COMP ANN GROSS).

• Previous year income (TAX AC BASE PY).

Calculating the Tax

The system uses a scheduler tax-calculation process. The one it uses depends on the tax method that you select using the variable TAX VR OPTIONS. The possible processes are:

1. Calculate no tax for the period.

2. Calculate taxes as a flat percentage.

3. Divide the month into two pay periods.

   For the first pay period, the system predicts the total monthly tax deduction (using formula TAX FM COMPTE OPT3) and applies this amount. In the last pay period, or for terminated employees, the system automatically calculates the reconciliation deduction using formula TAX FM COMPTE OPT4.

4. Calculate the monthly tax for the month to date (MTD) income and subtract the previously calculated taxes using formula TAX FM COMPTE OPT4.

5. Divide the month into two pay periods.

   For the first pay period, the system predicts the total monthly tax deduction (using formula TAX FM COMPTE OPT3), compares it with the amount that is calculated through method 4, and applies the larger of the two. In the last pay period, or for terminated employees, the system automatically calculates the reconciliation deduction using formula TAX FM COMPTE OPT4.

Note. The variable TAX VR OPTIONS operates at a collective level. You can override it at the payee or organizational level.

Annual Tax Calculation Using the Scale Method

The system calculates annual tax in this way:

1. Derives Tax A by adding the MTD scheduler tax income and the recurring monthly rate for the missing period of the month when the period end date is not equal to the month end date.

2. Derives Tax B by adding 1/12 of the MTD annual tax income to the income that is used to calculate MTD tax.

3. Determines the annual tax, where

   (Annual Tax) = (Tax B – Tax A) × 12.

The previous year tax calculation process is similar to the annual tax process, using the schedule income and tax from the last month of the previous year as the base. Thus, the EPF pretax deduction ceiling (416 MYR) calculation is based on the amount applied in the last month of the previous year.

Note. When a non-contractual bonus for the current year needs to be run before the regular payroll for a particular calendar, you must replace the value that is contained in formula CMN FM REMPER with a 1 at the calendar level override.

See Delivered Deductions Elements.

STD Calculation Using the Formula Method

The system uses the TAX FM COMP FL CLC formula to calculate regular STD (scheduler tax deductions) in the following manner:

1. Net STD for current month equals STD for current month minus Zakat and Fee/Levy for the current month.

2. STD for the current month equals:

   [(P-M)*R+B]-(Z+X)/n+1

   • P is the chargeable income for the year subject to the tax. The system adds the net year-to-date income up to the current month, plus the income received in any previous employment, plus the current month net income projected for the remaining months of the year, plus the annual income (only for the annual tax calculation), subtracting any optional and allowable deductions for the fiscal year

   • Up to 6000 MYR per year EPF is subtracted to determine the chargeable income P.

   • Z is the total year-to-date of zakat paid other than the zakat/fee for the current month.

   • X is the total year-to-date STD paid up to the previous month.

   • N is the number of remaining months in the fiscal year.

3. The system calculates the projected EPF subject to the chargeable income for the remaining months using the formula EPF REG TAX PROJ.

Annual Tax Calculation Using the Formula Method

The system uses the formula TAX FM CMP AN BASE to calculate any additional annual remuneration tax in this way:

1. Determines the total STD for the year by adding the accumulated year-to- date STD and current month-to-date STD multiplied by the number of months remaining in the year.

2. Derives the chargeable income for the year using the following formula:

   P = [Σ(Y–K*)+ (Y1 – K1*)+[(Y2 – K2*) x n]+(Yt – Kt*)] – [D+S+1000C + ΣLP LP1)]

   Where (Yt –Kt*) is the net annual income (MTD) for the current month after subtracting EPF calculated for annual income received for the month.

3. Derives the total tax for the year for the chargeable income P.

4. Determines the annual tax by subtracting Step 1 from Step 3 and adding any Zakat/Fee paid before the current month. STD for additional remuneration equals Step 3 - [Step 1[D] + Zakat and fee/levy which has been paid]

The previous year tax calculation process is similar to the annual tax. To derive the chargeable income for the previous year tax calculation process, the system uses the TAX FM COMP PY CLC formula in which the total income received for the previous year is added to the additional previous year income received in the current year. The system uses historic rule TAX HR CMP PREV YR to determine the total income received in the previous year.

Identifying Company Tax Details

To set up identification of company tax details, use the Tax Number Table MYS (GPMY_TAX_TBL) and Statutory Region Table MYS (GPMY_STAT_REG) components.

This section discusses how to:

• Set up the company reference number.

• Enter statutory region information.

• Enter reference number contact information.

• Associate a reference number with an organizational link.

Pages Used to Identify Company Tax Details

Setting Up the Company Reference Number

Access the Default Settings page (Set Up HRMS, Foundation Tables, Organization, Company, Default Settings).

Entering Statutory Region Information

Access the Statutory Region Table MYS page (Set Up HRMS, Product Related, Global Payroll & Absence Mgmt, Framework, Organizational, Statutory Region Table MYS, Statutory Region Table MYS).

Statutory Region

Enter the statutory region. This region is reported on the following forms: EPF Form 6, SOCSO Form 8A, SOCSO Form 8B, CP39 Monthly Statement of Tax Deductions - Electronic form, and Employee Tax Refund Form - Malaysian CP159A/PCB2(II).

Entering Reference Number Contact Information

Access the Tax Number Table MYS page (Set Up HRMS, Product Related, Global Payroll & Absence Mgmt, Taxes, Tax Number Table MYS, Tax Number Table MYS).

Registered Name	Enter the employer's official name.
Address	Enter the employer's address.
Responsible ID	Enter the employee ID of the organization's tax contact.
Name	Enter the name of the organization's contact person for taxation inquiries. This name appears as the company contact in all reports that are submitted to the Department of Inland Revenue.
National ID	Enter the contact person's national ID.
Job Title	Enter the job title of the company contact for taxation inquiries. This information appears in all the reports that are submitted to the Department of Inland Revenue.
Telephone and Fax	Enter the telephone and fax number of the company contact for taxation inquiries. This information appears in all reports that are submitted to the Department of Inland Revenue.

Associating a Reference Number with an Organizational Link

Access the Tax Data page (Set Up HRMS, Product Related, Global Payroll & Absence Mgmt, Framework, Organizational, Organization Numbers MYS, Tax Data).

Organizational Link Option	Select an organizational link. Options are: Company, Pay Group, Location, Establishment, and Department.
Load All Units	Click to insert a list of all possible organizational units into the organization link list. You can then specify the tax references number for each unit.
Effective Date and Status	Enter the effective date and status of the organization link. If the organizational link option changes, all the organizational units are deleted and all existing organizational link options become inactive.
Details	Click to view the Tax Reference Number Details page, which displays the employer details that are associated with the tax number.

Deriving Employee Tax Scales

To review the delivered tax scale data, use the Tax Scale Table (GPMY_TAX_SCALE_TBL) component.

This section discusses how to:

• Review tax scales for the scale method of tax calculation.

• Review tax amounts for the scale method of tax calculation.

• Review data for the formula method of tax calculation.

• Review tax declaration set up data for the formula method of tax calculation

Pages Used to Derive Employee Tax Scales

Reviewing Tax Scales for the Scale Method of Tax Calculation

Access the Scale Definition page (Set Up HRMS, Product Related, Global Payroll & Absence Mgmt, Taxes, Tax Scale Table MYS, Scale Definition).

Use the Tax Scale Table to view the delivered Malaysian Tax Schedule that the system uses if you select the tax scale method.

Scale Category

Reviewing Tax Amounts for the Scale Method of Tax Calculation

Access the Wage Range page (Set Up HRMS, Product Related, Global Payroll & Absence Mgmt, Taxes, Tax Scale Table MYS, Wage Range).

Low Range	Displays the minimum taxable wages for the specified tax amount. This amount must be less than the high range.
High Range	Displays the maximum taxable wages for the specified tax amount. This amount must be greater than the low range and cannot overlap another range.
Tax Amount	Displays the amount of tax to be withheld from a payee based on the payee's taxable wages.

Reviewing Data for the Formula Method of Tax Calculation

Access the Brackets - Data page for the element TAX BR SCALE (Set Up HRMS, Product Related, Global Payroll & Absence Mgmt, Elements, Supporting Elements, Brackets, Data).

Use the TAX BR SCALE bracket to view the delivered tax data that the system uses if you select the tax formula method. This data is used by the formula TAX FM FINAL CALC.

Reviewing Tax Declaration Set Up Data for the Formula Method of Tax Calculation

Access the Tax Declaration Setup MYS page (Set Up HRMS, Product Related, Global Payroll & Absence Mgmt, Taxes, Tax Declaration Setup MYS).

Define the tax declaration setup for each data entry page. For example, the elements that you define for the Deductions page (GPMY_DEDUCTION) are the elements that you can select when entering payee tax information on the Rebates page.

Entering Employee Tax Details

This section discusses how to:

• Enter payee tax details.

• Enter spouse tax details.

• Enter tax declarations details

• Enter employee CP38 data.

• Enter Zakat contributions.

• Extract dependent data from Human Resources.

Pages Used to Enter Employee Tax Details

Entering Payee Tax Details

Access the Payee Details page (Global Payroll & Absence Mgmt, Payee Data, Taxes, Maintain Tax Data MYS, Payee Details).

Tax Reference Number	Displays the employee's tax reference number. The format should be AA99999999999.
Letter Reference	Enter the letter reference that instructs the employer to stop the tax deduction for a particular employee. This data can be saved only if you select the Stop Tax check box.
Stop Tax	Select to stop the calculation of all tax for the payee except additional taxes that are specified for scheduler tax and annual tax. Warning! Selecting the Stop Tax check box applies this feature to all future dates. To restart taxation for the next year, enter a new row with an effective date of January of that year.
Wife Employed	Select to specify that the wife of a male payee is employed. This field is hidden for female payees.
Tax Scale	Enter a value to override the tax scale that is determined automatically by the system. Use when employing the scale method.
Tax Category	Enter a value to override the tax category that is determined automatically by the system. Use when employing the formula method.
Number of Dependents	Enter a value to override the number of dependents (through the Dependent/Beneficiary pages). Use when employing the formula method.
First Form E Reporting Year	Displays the first year that a Form E was printed for a payee. This field is updated by the Form E report process and is display-only.
Scheduler Tax Additional Amount	Enter an additional amount of tax to be withheld from the payee for scheduler tax. Either an amount or a percentage may be entered, but not both.
Scheduler Tax Additional Percentage	Enter an additional percentage of tax to be withheld from the payee for scheduler tax. Either an amount or a percentage may be entered, but not both.
Annual Tax Additional Amount	Enter an additional amount to be withheld from the payee for annual tax.
Annual Tax Additional Percentage	Enter an additional percentage to be withheld from the payee for annual tax.
Employer Tax Number	Displays the employer tax reference number to which the payee is assigned. The system generates a value that is based on the organizational link information, but the value can be overridden. This field is required for all payees.
Tax Office Branch	Enter the name of the tax office branch that handles the payee.

Entering Spouse Tax Details

Access the Spouse Details page (Global Payroll & Absence Mgmt, Payee Data, Taxes, Maintain Tax Data MYS, Spouse Details).

ID	Enter the ID for the spouse of the payee. If you enter a value, the system supplies the remaining information, which is display-only. Otherwise, you can enter information about the spouse.

Entering Employee CP38 Data

Access the Define CP38 Data MYS page (Global Payroll & Absence Mgmt, Payee Data, Taxes, Define CP38 Data MYS, Define CP38 Data MYS).

Enter the CP38 data that is sent from the Inland Revenue Board (IRB).

Entering Zakat Contributions

Global Payroll for Malaysia enables you to manage your payees' Zakat contributions. The system can either deduct a fixed monthly amount for a payee or consider all the tax deductions as Zakat contributions. In both instances, Zakat is deducted from net pay and is applied as a rebate in the tax process.

When you use the fixed amount option, the maximum amount of Zakat tax rebate is equal to the total tax amount. If the Zakat tax rebate exceeds the total tax amount, the remaining rebate applies to subsequent months (but not subsequent years). Zakat functionality does not apply to bonus payments, except when applying excess rebates.

To enter a fixed amount of Zakat:

1. Access the Supporting Element Overrides page (Set Up HRMS, Product Related, Global Payroll & Absence Mgmt, Elements, Absence Elements, Absence Entitlements, Supporting Element Overrides).

2. Enter the TAX VR ZAKAT element on the Elements/Dates tab.

3. Enter the begin and end dates to define the period in which the amount should be recovered.

4. On the Values tab, enter the monthly amount to be recovered.

To trigger a Zakat rebate equal to total tax amounts:

1. Access the Supporting Element Overrides page (Set Up HRMS, Product Related, Global Payroll & Absence Mgmt, Elements, Absence Elements, Absence Entitlements, Supporting Element Overrides).

2. Enter the TAX VR ZAKAT SCH element on the Elements/Data tab.

3. Enter the begin and end dates to define the period in which the override applies.

4. Enter a character value of Y on the Values tab.

Extracting Dependent Data from Human Resources

To determine the number of dependents for tax purposes, the system extracts the following information from the Personal Profile page in the Human Resources application:

• Relationship to payee.

• Dependent or beneficiary type.

• Birth date.

• Marital status.

• Full-time student status.

• Disability.

• Student - Within/Outside Malaysia.

See Also

Entering Additional Data in Human Resources Records

Setting Up Benefits In Kind

To set up Benefits In Kind (BIKs), use the Benefits in Kind Setup MYS (GPMY_BIK_SETUP) component.

This section provides an overview of BIK setup and discusses how to:

• Set up a BIK for company property.

• Set up a BIK by amount.

• Set up a BIK by eligibility.

Understanding BIK Setup

BIKs are goods, services, or property provided by the employer to the employee. BIKs are stored in Global Payroll elements. Once entered, the system uses this information to generate tax form CP8A.

You can set up three types of BIKs in the payroll system:

• Company property.

  Use this type of BIK when company property is considered a BIK. Use the Property Value page to record the purchase date, price, benefit value, and life span of the benefit.

• By amount.

  This type of BIK has values that vary by employee and that are defined at the payee level. Examples include interest paid by the employer, tuition, and fuel that is provided without a car.

• By eligibility.

  This type of BIK has the same value for all eligible employees. Examples are mobile phone expenses, gardener allowance, domestic servant allowance, and driver allowance.

Pages Used to Set Up BIKs

Setting Up a BIK for Company Property

Access the Property Value page (Set Up HRMS, Product Related, Workforce Administration, Company Property, Property Value).

Purchase Date	Enter the date of purchase.
Purchase Price	Enter the purchase price.
Benefit Value	Enter the value of the benefit to be used in calculations.
Life Span (years)	Enter the expected life span of the company property.
Benefit in Kind	Select if the property is a BIK.

See Also

Handling Company Property

Setting Up a BIK by Amount

Access the Benefits in Kind Setup MYS - Amounts page (Set Up HRMS, Product Related, Global Payroll & Absence Mgmt, Taxes, Benefits in Kind Setup MYS, Benefits in Kind Setup MYS - Amounts).

Use Benefit Eligibility	Select this check box to identify eligibility.
Sequence	Enter a number to specify the sequence of the elements displayed. This number determines the order in which the elements appear on the payee entry page.
Entry Type	Select the type of element.
Element Name	Enter the name of the element that is related to the benefit.

Setting Up a BIK by Eligibility

Access the Benefits in Kind Setup - Eligible page (Set Up HRMS, Product Related, Global Payroll & Absence Mgmt, Taxes, Benefits in Kind Setup MYS, Benefits in Kind Setup MYS).

Use Benefit Eligibility	Selected by default because all elements grouped on this page are eligible for BIK. Each has a specific value defined at the earning level.
Sequence Number	Enter a number to specify the sequence of the elements displayed. This number determines the order in which the elements appear on the payee entry page.
Entry Type	Select the type of element.
Element Name	Enter the name of the element that is related to the benefit.

Assigning BIKs to an Employee

After you define BIK types, you assign them to employees and maintain them.

This section discusses how to:

• Assign company property to an employee.

• Maintain payee BIK information by amounts.

• Maintain payee BIK information by eligibility.

Pages Used to Assign BIKs to Employees

Assigning Company Property to an Employee

Access the Company Property page (Workforce Administration, Job Information, Company Property).

Property Code	Enter the Property Code.
Issue Date	Enter the date that the company property is issued to the employee.
Date Returned	Enter the date when the property is returned by the employee.

Maintaining Payee BIK Information by Amounts

Access the Benefit Amounts page (Global Payroll & Absence Mgmt, Payee Data, Taxes, Specify Benefits in Kind MYS, Benefit Amounts).

Begin Date	Enter the start date of the entitlement.
End Date	Enter the end date of the entitlement or the employee's termination date. Enter proration in calendar days using the begin and end dates. The system will not calculate the BIK if the end date is before the segment end date. Termination dates are automatically considered entitlement end dates. Note. No proration is needed for the following BIKs: group insurance benefit (INSUR BIK), interest paid by employee (INT FREE BIK), recreation and club membership (RECREAT BIK), service charge and utilities benefit (SERV UTIL BIK), and tuition and school benefit (TUITION BIK). For these benefits, the begin and end dates should span the entire year.
Amount	Enter the amount of the entitlement. Note. When you enter the housing BIK, the system can compare the BIK to the payee's gross income. Enter the BIK as a percentage of the gross using earning HOUS BIK PCT or as an amount using earning HOUS BIK AMT. You can enter both to make the system calculate and choose the lesser value.

Maintaining Payee BIK Information by Eligibility

Access the Eligible Benefits page (Global Payroll & Absence Mgmt, Payee Data, Taxes, Specify Benefits in Kind MYS, Eligible Benefits).

Eligible	Select if the employee is eligible for the benefit.
Begin Date	Enter the start date of the entitlement.
End Date	Enter the end date of the entitlement or the employee's termination date. Enter proration in calendar days using the begin and end dates. The system will not calculate the BIK if the end date is before the segment end date. Termination dates are automatically considered entitlement end dates.

Note. Benefit amounts are derived from Global Payroll Earning elements.

Reporting Tax Data

Global Payroll for Malaysia enables you to create the following tax reports:

• CP22

• CP39

See Also

Administering Inland Revenue Reporting