According to the Federal Government Gazette ‘Income Tax (Deduction from Remuneration) (Amendment) Rules 2013, MTD is an income tax deduction mechanism from an employee’s current monthly remuneration in accordance with the Schedule of Monthly Tax Deductions or other methods approved by the Director-General. With the rising cost of living, a deduction in the MTD can be a great help for employees. Hence, instead of receiving tax refunds annually, employees now have the option to increase their monthly net income through deductions made monthly.
What are the Different Types of TP Forms?
There are three types of forms which are commonly known as TP Forms. It is important to note that it is the Employer’s responsibility to get familiarize with the rules and regulations before making any deductions. Here’s a rundown of the forms to get yourself acquainted.
1. Form PCB TP1 for Individuals
TP1 Form is likely the most commonly used as it allows deductions from common tax reliefs for individuals. It includes insurance, books, education and more. The only difference is that instead of filling these in March or April every year, the deduction is made monthly.
The TP1 Form can be found here.
2. Form PCB TP2 for Benefits-in-Kind and Value-of-Living Accommodation Provided by the Employer
The use of TP2 forms has been made compulsory since the year 2015. When an employee receives Benefits-in-Kind (BIK) such as Leave Passage, club membership or allowances, these need to be declared. More often than not, employees find that these benefits can often lead to a spike in the accumulated taxable amount, leading to a higher tax rate and the need for a CP38 deduction. Hence, making it compulsory ensures that chargeable income tax is computed sufficiently every month.
The TP2 Form can be found here.
3. Form PCB TP3 for Information Related to Employment with the Previous Employer
To ensure a new employee’s income tax falls in the right tax bracket, the TP3 Form requires information about the employee’s previous employment remuneration and benefits. It is mandatory that each new hire fills up this Form to ensure the correct total taxable amount.
The TP3 Form can be found here.
There are seven responsibilities listed in the Income Tax (Deduction from Remuneration) (Amendment) Rules 2013. However, here’s a simplified version.
Employers must make known to employees about the availability of Form TP1, TP2 and TP3 and ensure they understand how it affects their MTD’s.
Employers are allowed to have a minimum of 2 submission windows for the TP1 Form annually. However, employees must be made known of the set timeframe.
Employers are to ensure the TP2 Form is processed for monthly tax deduction every time a BIK payment is made to employees.
It is the employee’s responsibility to fill up the forms and ensure all information provided is accurate. There is no need to provide any supporting documents such as receipts.
The company must retain all TP1, TP2 and TP3 Forms for at least seven years.
Penalties for Failure to Comply
An employer is liable for persecution under Rule 17, Income Tax (Deduction from Remuneration) Rules 1994 if “The Rules” for MTD do not comply. The type of offences includes the following.
Failure to remit Monthly Tax Deductions of employees by the 15th of the following month.
Failure to pay and/or reduce MTD and/or make CP38 deductions from the employee’s remuneration.
Failure to give complete and accurate information about employees.
Under this Rule, upon conviction, an employer can be fined not less than RM200 and not more than RM20,000, imprisonment for a term not exceeding six months of both.
TP Forms are very much lesser-known amongst Malaysian employees today. However, the use of TP Forms is beneficial for all parties- employers, employees and the Inland Revenue Board of Malaysia. Thus, employers must educate employees about the benefits of these forms to ensure a smoother process during tax season.