TAX737
Q4 -Briefly explain Schedular Tax Deduction System (PCB System)
Background
1) What is Schedular Tax Deduction
System
(PCB – Potongan Cukai Bulanan)
a) Introduced on 1 January 1995.
b) A mechanism whereby
employers deduct monthly tax
payments from the employment
income of their employees.
c) PAYE – “Pay as you earn”
concept.
2) Mechanism
a) Employer deduct tax from the
employee’s gross income every
month.
b) The monthly tax is then remitted
by employer to Lembaga Hasil
Dalam Negeri (“IRB”) no longer
than the 15th of the following
month.
c) Deduction is according to
formulas approved by the
Director General of Inland
Revenue (“DGIR”) according to
provisions under Rule 3 of the
Income Tax (Deduction from
Remuneration) Rules 1994 (“MTD
Rules”).
Objectives
1) To IRB
a) Anti-avoidance measure - an
efficient manner of collecting
tax from employees.
2) To Employee (Tax Payer)
a) Reduce burden in paying tax in
one lump sum when the actual
tax is ascertained.
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b) Provide option not to submit
income tax returns if MTD is
correct and equivalent to
actual tax (subject to fulfilment
of criteria under Section 77C (1)
of Income Tax Act 1967 (“ITA
1967”)
The relevant Acts, Rules and
Regulations
1) Determination on residence status
Section 7 of ITA 1967
(For details, please refer to ITA 1967)
2) Deduction of tax from emoluments
and pensions
Section 107 of ITA 1967
(For details, please refer to ITA 1967)
3) Definition and components of
employment income
Section 13(1) of ITA 1967
(For details, please refer to ITA 1967)
4) Scheduled deduction
Rule 3 of MTD Rules
Employer to deduct for tax monthly
from employee’s remuneration.
(For details, please refer to MTD
Rules)
5) Deduction by Direction of DGIR
Rule 4 of MTD Rules
DGIR may instruct employer to
deduct from employee’s
remuneration the tax due
(For details, please refer to MTD
Rules)
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TAX737
Q4 -Briefly explain Schedular Tax Deduction System (PCB System)

6) Deadline for payment of amount b) Employees allowed to claim for

deducted and returns
Rule 10 of MTD Rules
Employer shall pay to the DGIR not
later than the 15th day of the month,
the total amount of tax deducted
from employee’s preceding month
remuneration.
allowable deductions and
rebates under the ITA 1967 in
each month or in any month in
the current year.
Duties and Responsibilities

(For details, please refer to MTD 1) Employer

Rules) a) Deduct the MTD from
employee’s monthly
7) Offence remuneration.

Rule 17 of MTD Rules b) Make additional deductions

from employee’s remuneration
(For details, MTD Rules) under Rule 4 of MTD Rules.

c) Remit the tax payment to the

DGIR not later than 15th of every
Implementation Methods calendar month, the tax
deducted from the employee’s
preceding month remuneration.
1) Determination of MTD amount
d) Furnish a complete and
a) Schedule of Monthly Tax accurate return, the following
Deduction; or employee information together
with payment submission:
b) Computerised Calculation • Employee income tax
Method number
• Name according to IC or
2) Schedule of Monthly Tax Deduction passport
• New and old IC numbers,
a) For employers not using police number, army number
computerised payroll software. or passport number (for
foreign employee); and
3) Computerised Calculation Method • MTD amount or additional
a) For employers who deduction amount.
• use computerised payroll
system provided by software e) Information on cessation of
provider, or developed / remuneration of employee
customised by employers under Rule 13 of MTD Rules.
according to specifications
determined and reviewed f) Keep and retain in safe custody
by IRB; or sufficient documents within
• Use system/application seven (7) years from the end of
developed by IRB and the relevant year of assessment
available in IRB’s website. (“YA”).

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TAX737
Q4 -Briefly explain Schedular Tax Deduction System (PCB System)
g) Notify employee of his/her duties
and responsibilities under the
MTD Rules
2) Employee (Tax Payer)
a) Submit to employer, information
on previous employment under
the current year.
b) Submit request for monthly
deductions in prescribed form.
c) Submit request to include
benefits in kind (BIK) and value
of living accommodation
(VOLA) as part of remuneration
in ascertaining MTD amount.
d) Keep and retain in safe custody
each receipt relating to claims
for deduction within seven (7)
years from the end of the
relevant YA.
e) Furnish complete and accurate
personal information and notify
changes in personal information
to employer.
f) Submit accurate information on
taxable income.
Criteria for Implementation
1) Residence status
a) Residence status is determined
under Section 7 of ITA 1967.
b) Resident employee
a) MTD after allowable tax
deductions under ITA 1967.
c) Non-resident employee
b) Computation based on
Section 1A (Schedule 1) of
ITA 1967.
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2) Employee status
a) Categories
a) Category 1
1. Single
b) Category 2
1. Married. Husband/wife
not in employment.
c) Category 3
1. Married. Husband/wife in
employment
2. Divorced
3. Widowed
4. Single (with adopted
child).
b) Example of MTD determination
• If wife claims for full child
relief
1. MTD for wife will be based
on Category 3 with child
relief (KA1 – KA20); and
2. MTD for husband will be
based on Category 3 no
child relief (K).
• MTD for single (with adopted
child) is ascertained under
Category 3 (KA1 – KA20).
Resident
1) Criteria
a) In Malaysia at least 182 days in
calendar year;
b) In Malaysia for less than 182 days
(“shorter period”) but that
period is linked to a period of
physical presence of 182 days or
more “consecutive” days in the
following or preceding year
(“longer period”).
Temporary absence from
Malaysia due to the following
reasons shall be taken as part of
the consecutive days, provided
the employee is in Malaysia
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TAX737
Q4 -Briefly explain Schedular Tax Deduction System (PCB System)

before and after each c) Exemption (short term

temporary absence; employee)
1. Business trips • Income of non-resident for
2. Treatment for ill-health of employment in Malaysia if:
himself or member of 1. Aggregate period or
immediate family periods of employment in
3. social visits not exceeding Malaysia does not
14 days in aggregate exceed 60 days in a
calendar year, or
c) In Malaysia for 90 days or more 2. Where the total period of
during the year and, in any 3 of employment which
the 4 immediately preceding overlaps 2 calendar years
years, he was in Malaysia for at does not exceed 60 days.
least 90 days or was resident in
Malaysia 2. Remuneration that is subject to MTD
a) Salary
d) Resident for the year b) Wages
immediately following that year c) Overtime
and for each of the 3 d) Commission
immediately preceding years. e) Tips
f) Allowance
g) Bonus or incentive
h) Director’s fee
Remuneration i) Perquisite
j) Employee’s share option
scheme (ESOS)
1. What is remuneration? k) Tax borne by employer
a) Income arising from gain or l) Gratuity
profit from employment as m) Compensation for loss of
specified under Section 13(1) of employment
ITA 1967. n) Any other remuneration related
to employment
b) Regarded as derived from
Malaysia and subject to 3. Remuneration that is not subject to
Malaysian tax if the employee: MTD
• Exercise an employment in a) Benefits-in-kind (BIK)
Malaysia • Benefits that cannot be
• Is on paid leave attributable converted into money.
to employment in Malaysia
• Performs duties outside b) Value of living accommodation
Malaysia which is incidental (VOLA)
to the exercise of • Living accommodation
employment in Malaysia provided for an employee by
• A director of a company his employer.
resident in Malaysia; or
• Employed to work on board c) Employee may make
of aircraft or ship operated irrevocable election to include
by a person who is a resident BIK and VOLA as part of his
in Malaysia. remuneration.

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Q4 -Briefly explain Schedular Tax Deduction System (PCB System)

4) Categories of remuneration 2) Optional deductions/relief

a) Normal remuneration a) Zakat rebates through salary
• Fixed monthly payments to deduction
employees whether the b) Selected approved deductions
amount is fixed or fluctuates c) Zakat rebates not through salary
according to the written deduction
contract of employment or
otherwise.
• Includes: MTD as Final Tax
1. Commission
2. Salary based on daily or
hourly rate 1) What is MTD as Final Tax
3. Salary of which value a) A condition whereby taxpayer is
depends on foreign qualified as not having to submit
exchange rate. tax returns to IRB.

b) Additional remuneration 2) Who is qualified?

• Additional payment to a) Employee who receives
employee either on a lump employment income under
sum, on regular basis, in Section 13 of ITA 1967;
arrears or non-fixed
payments. b) MTD of employee is based on
• Includes: MTD Rules;
1. Bonus or incentive
2. Salary in arrears or any c) Employee served under the
other arrears same employer for a period of
3. Employee share option twelve (12) months in a calendar
scheme (ESOS) year.
4. Tax borne by employer
5. Gratuity 3) Non-qualifying factors
6. Compensation for loss of a) If an employee work with more
employment than one employer at one time
7. Ex-gratia
8. Director’s fee b) Employment period less than
9. Commission (not paid twelve (12) months in a calendar
monthly) year
10. Other
c) Tax borne by employer

d) Joint assessment
Allowable Deductions (Reliefs)
e) Income such as BIK and VOLA
not taken into consideration in
1) Mandatory deductions computation of MTD; or
a) Individual
b) Spouse f) Taxpayer claiming for refund or
c) Child relief or rebate
d) Contribution to Employee
Provident Fund (EPF) or other
approved scheme.

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Q4 -Briefly explain Schedular Tax Deduction System (PCB System)
Method of Payment
1) Electronic payment
a) Effective 1 September 2019, IRB
no longer accept:
• information submitted
manually
• MTD payment paid using
cash or cheque at its
payment counter or send
through post or courier.
b) MTD payments must be made
via
• electronic medium (on-line)
facility either through FPX,
IBG; or
• through internet banking
portal of several commercial
banks appointed as tax
collection agents by IRB
Offences
Rule 17 of MTD Rules
1) Types of offences
a) Failure to remit MTD by the 15th
of the following month
b) Failure to deduct and / or
insufficient deduction of MTD
c) Failure to remit or insufficient
MTD or CP38 deduction remitted
d) Failure to give complete and
accurate information about
employee
2) Charges upon conviction
a) Fine of not less than RM200 and
not more than RM20,000; or
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b) imprisonment for term not
exceeding 6 months; or
c) both
References
1) Lembaga Hasil Dalam Negeri
(LHDN) website www.hasil.gov.my
2) Garis Panduan Potongan Cukai
Bulanan Di Bawah Kaedah-Kaedah
Cukai Pendapatan (Potongan
Daripada Saraan) Pindaan 2019
dated 1 January 2016 issued by
LHDN
3) Income Tax Act 1967
4) Income Tax (Deductions from
Income) Rules 1994
5) Federal Government Gazette
P.U.(A) 311- Income Tax (Deduction
from Remuneration (Amendment)
Rules 2015 dated 29 December
2015
6) Federal Government Gazette
P.U.(A) 35 - Income Tax (Deduction
from Remuneration (Amendment)
Rules 2014 dated 30 January 2014
7) 2019 Budget Commentary and Tax
Information by Malaysian Institute of
Accountants (MIA)
8) 2018/2019 Tax Booklet PWC
9) 2015 Tax Booklet PWC
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Q4 -Briefly explain Schedular Tax Deduction System (PCB System)

Types of deductions/reliefs/rebates for YA2019

1) Personal reliefs for resident individuals

Description Amount (RM)
1) Taxpayer 9,000

2) Disabled person (additional relief)

a) Taxpayer 6,000
b) Spouse 3,500
c) Supporting equipment 6,000
d) Wife – no source of income 4,000
e) Husband – no source of income 4,000

3) Child (per person)

a) Below 18 years 2,000
b) Disabled and unmarried 6.000
c) Over 18 years 8,000
d) Over 18 years and study overseas 8,000
e) Over 18 years and study local 8,000
f) Disabled and pursue tertiary education 8,000

4) Medical
a) Parents 5,000
b) Taxpayer, spouse, child on serious disease 6,000

5) Life insurance premiums/approved fund

contributors/private pension fund 7,000
6) Private retirement scheme/annuity premium 3,000
7) Insurance premiums for education or medical benefits 3,000
8) Pursue skills 7,000
9) Skim Simpanan Pendidikan Nasional 8,000

10) Parental care

a) Father 1,500
b) Mother 1,500

11) SOCSO 250

12) Lifestyle 2,500
13) Breastfeeding equipment 1,000
14) Childcare 1,000
15) Approved provident funds contribution 4,000

16) Takaful
a) Private sector 3,000
b) Public sector 7,000

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