What is Monthly Tax Deduction (MTD/PCB)?
The Monthly tax deduction (MTD), also known as Potongan Cukai Bulanan (PCB) are monthly deductions from employment income that go towards paying taxes. These are usually automatically done and retained by employers and paid to the Inland Revenue Board of Malaysia (Lembaga Hasil Dalam Negeri (LHDN)).
Why was MTD introduced?
The Lembaga Hasil Dalam Negeri (LHDN) wanted to adopt the method of automated monthly payments (similar to STP in Australia and RTI in the UK) to help taxpayers from having to pay a lump sum at the end of each financial year.
How can employers pay monthly tax deductions (MTD)?
The following are examples of how the IRBM/LHDN accepts the MTD/PCB:
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Manual Payments
These can be done by the employer using forms CP39 or CP39A directly in person at the Inland Revenue Board of Malaysia. Alternatively, these forms can be mailed by post with a Malaysian bank-issued cheque. No cash is accepted by mail and cheque or bank drafts have to be submitted to the KL payment centre in Jalan Tunku Abdul Halim.
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Payments using diskette
The MTD/PCB information can be saved in a diskette and the payment can be be made to all CIMB Bank or Publick Bank Berhad branches in Malaysia.
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Payments Online
Payments can be done online via FPX (for members), especially if it’s for e-PCB and e-data PCB. Alternatively, employers can login to their internet bank accounts and make the payment directly.
Are MTD/PCB payments final? Do employees still need to file a tax return?
From 2014 (tax that is filed in 2015), taxpayers who are enrolled in MTD/PCB are not required to file income tax returns at the end of the year if this is the final tax they will pay, provided that they meet the following criteria:
- Your employment income is your only source of income and is prescribed under Section 13 of the Income Tax Act 1967
- Your MTD/PCB is made under the Income Tax (Deduction from Remuneration) rules 1994
- Your employer has continually been deducting MTD/PCB from your salary correctly
- You have been working for 12 months (in a calendar year) with the same employer
- Your employer is not paying for your taxes separately on your behalf
- You have not opted in for a joint assessment with your spouse
If these conditions are met, you are exempt from lodging a tax return by the end of the financial year. Otherwise, you are expected to file your tax return.
IMPORTANT: All employees must provide employers with a completed form TP1 (individual deduction and rebate claim form) to ensure that the MTD/PCB are net and account for tax reliefs, rebates and zakat payments.
Employers are then required to submit the form TP1 to the LHDN.
Penalties for Late Payments
If employers fail to make payments on or before the 15th of the following month, they can be fined RM200 and up to RM20,000 or 6 months imprisonment (or both).
Employers who fail to remit MTD/PCB to the IRBM/LHDN can be prosecuted in civil court.
Need help with your tax or payroll matters?
We know that handling payroll or tax matters for your employees with the LHDN is no walk in the park, that is why Employment Hero is LHDN (IRBM) verified and is here to help you save hours of administration time when it comes to your employees’ PCB (MTD) requirements each month.
Book a demo with us to learn more!
Disclaimer: The information in this article is current as at 20-Oct-2022, and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its related corporate bodies (Employment Hero). The views expressed in this article are general information only, are provided in good faith to assist employers and their employees, and should not be relied on as professional advice. The Information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified, and no warranties are given that it is complete, accurate, up-to-date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and seek professional advice before making any decisions or relying on the information in this article.
