Zakat Administration & Tax Planning - Islamic Financial Planning (IFP) by dr Mohd Adib Abd Muin

ISLAMIC FINANCIAL
PLANNING (IFP)
ZAKAT ADMINISTRATION & TAX PLANNING
BY DR. MOHD ADIB ABD MUIN
Zakat Administration & Tax Planning - IFP - Dr Mohd Adib Abd Muin - UUM 2021

MAJOR COMPONENTS OF ISLAMIC
FINANCIAL PLANNING
1. Cash Flow and Liability Management
2. Risk Management and Takaful Planning
3. Islamic Investment Planning
4. Zakat Administration and Tax Planning
5. Islamic Retirement Planning
6. Islamic Estate and Waqf Planning

ZAKAT
ADMINISTRATION

CHAPTER OUTLINE
◦ Introduction to Zakat
◦ Zakat Administration in Malaysia
◦ Wisdom of Zakat
◦ Asnaf (Zakat Recipients)
◦ Types of Zakat
◦ Two Types of Business Zakat Calculation
◦ Conditions to be Fulfilled for zakat
◦ Haddul Kifayah for Zakat on Imployment Income
◦ Method of calculationg zakat on Employment Income

INTRODUCTION OF ZAKAT
◦ Zakat is a payment of a percentage of a Muslim’s income/properties to an authorized
zakat institution through a zakat collector (‘amil) for distribution to other needed Muslim
as specified by the shariah.
◦ It is one of the five pillars of Islam and therefore is obligatory (mandatory) to all Muslim.
◦ Zakat payment can be seen spiritually as wealth purification, not found in conventional
personal financial planning.
◦ One of the most important principles of Islam is that all things belong to Allah S.W.T, and
the wealth is therefore held by human beings in trust.
◦ Zakat means both ‘purification’ and ‘growth’.
◦ Our possessions are purified by setting aside a proportion for those in need.

Definition of Zakat
◦ Literally
◦ Cleansing or purifying (toharah) of something from dirt or filth
◦ Praise, growth and increase (al-Nama’)
◦ Theologically
◦ Spiritual purification resulting from paying zakat
◦ Legally
◦ Transfer of ownership of specific wealth to specific individual (s) under specific
conditions

Aims of Zakat
◦ Our worship to Allah for all His bounties to mankind
◦ Al-Baqarah: 267 “Oh ye believe! Give of the good things which ye have (honourably earned).
And of the fruits of the earth which we have produced for you..”
◦ Assist the poor and the needy
◦ Al-Dzariyat: 19 “and their wealth and possessions (was remembered) the right of the (needy)..”
◦ Act as a mechanism to distribute wealth
◦ Purify one’s heart and self from being stingy
◦ Al-Tawbah: 103 “Of their goods take alms. That so thou mightest purify and sanctify them..”

When is Zakat Due?
◦ Passage of One Lunar Year:
◦ Zakat is obligatory after a time span of one lunar year passes with the
money in the control of it’s owner. Then the owner needs to pay 2.5% (or
1/4) of the money as Zakat (a lunar year is approximately 355 days).
◦ (Genap tempoh setahun bagi pemilikan harta tersebut. 354 hari bagi
kalendar tahun Hijrah dan 365 hari bagi kalendar tahun Masihi/Lunar year).

ZAKAT ADMINISTRATION IN MALAYSIA
◦ The Federal Government does not have a full authority in religious affairs.
◦ Zakat is the responsibility of the Islamic Religious Council (MAIN) of each state in the country.
◦ Under Religious Administration Enactment.
◦ Each Council (MAIN) reports to the sultan or Ruler of each state.
◦ At National Level, there is national Council for Islamic Affairs Division of the Prime Minister’s Department.
◦ Department of Islamic Development Malaysia (JAKIM).
◦ Department of Waqf, Zakat and Hajj (JAWHAR)
◦ Institute of Islamic Understanding Malaysia (IKIM_
◦ Institute of Islamic Training Malaysia (ILIM).

WISDOM OF ZAKAT
1) Distribute part of the wealth from fortunate to the unfortunate people
2) Purifying the zakat payer
3) Increase the wealth
4) To show our gratitude or thanks to ALLAH
5) Minimize envy feelings of the unfortunate
6) To enhance relationship between Muslim and Allah and also among Muslim
7) Another way for the wealthy people to worship to ALLAH
8) To develop unity among Muslim
9) Muslim to manage their economy with blessing from ALLAH
10)To create calmness and peaceful in the heart of zakat payer

ASNAF (ZAKAT RECIPIENTS)
◦ Unlike normal charity (sadaqah), the recipients of Zakat have been specified by Allah SWT in the
Holy Al-Quran, Surah Al-Taubah, verse 60.
‫و‬ُ‫ل‬ُ‫ق‬ ِ‫ة‬َ‫ف‬َّ‫ل‬َ‫ؤ‬ُ‫م‬ْ‫ل‬‫ا‬َ‫و‬ ‫ا‬َ‫ه‬ْ‫ي‬َ‫ل‬َ‫ع‬ َ‫ين‬ِ‫ل‬ِ‫ام‬َ‫ع‬ْ‫ل‬‫ا‬َ‫و‬ ِ‫ين‬ِ‫ك‬‫ا‬َ‫س‬َ‫م‬ْ‫ل‬‫ا‬َ‫و‬ ‫اء‬َ‫ر‬َ‫ق‬ُ‫ف‬ْ‫ل‬ِ‫ل‬ ُ‫ات‬َ‫ق‬َ‫د‬َّ‫ص‬‫ال‬ ‫ا‬َ‫م‬َّ‫ن‬ِ‫إ‬
ْ‫ل‬‫ا‬َ‫و‬ ِ‫ب‬‫ا‬َ‫ق‬ ِ
‫الر‬ ‫ي‬ِ‫ف‬ َ‫و‬ ْ‫م‬ُ‫ه‬ُ‫ب‬
‫ال‬ ِ‫ن‬ْ‫ب‬‫ا‬َ‫و‬ ِ‫ّللا‬ ِ‫ل‬‫ي‬ِ‫ب‬َ‫س‬ ‫ي‬ِ‫ف‬ َ‫و‬ َ‫ين‬ِ‫م‬ ِ
‫ار‬َ‫غ‬
ِ‫ل‬‫ي‬ِ‫ب‬َّ‫س‬
ٌ‫م‬‫ي‬ِ‫ك‬َ‫ح‬ ٌ‫م‬‫ي‬ِ‫ل‬َ‫ع‬ ُ‫ّللا‬َ‫و‬ ِ‫ّللا‬ َ‫ن‬ِ‫م‬ ً‫ة‬َ‫ض‬‫ي‬ ِ
‫ر‬َ‫ف‬
"Zakat is for the poor and the needy, and amil (those employed to administer the funds), for the
muallaf (those who have embraced Islam), for those in bondage and in debt, those who strive in the
cause of Allah and for the wayfarer; (thus it is) ordained by Allah and Allah is full of knowledge and
wisdom."

Cont…
◦ 8 categories of beneficiaries:-
◦ The poor (masakin)
◦ The needy (fuqara’)
◦ Amil (individuals who have the authority and responsible to collect zakat)
◦ Mualaf (people who convert to become Muslims)
◦ Ar-riqab (to free the captives)*
◦ Ibnu sabil (the wayfarer)
◦ Gharimin (those in debt)
◦ Fisabillillah (deeds accomplished in the cause of Allah s.w.t)

Cont…
Hadith from Rasulullah s.a.w as narrated by Abu Daud
“ …indeed, Rasulullah s.a.w asked us to pay zakat from the property that we prepare to sell”
All kind of businesses owned by Muslims are subject to zakat.

TYPES OF ZAKAT
Two (2) main types of zakat:
1. Zakat fitr (due from the starting of Ramadhan and ends before the eid’ fitr prayer)
◦ 2.7kg of staple food in the relevant country or an amount of money that is equivalent to the price of
the food.
2. Zakat on mal (wealth)
◦ Traditional types of wealth subject to zakat
◦ Agricultural produce, reared animals, business, saving, gold and silver
◦ New types of wealth subject to zakat
◦ Various forms of wealth based on the consensus of Islamic scholars and jurists e.g.
employment income, professional income, home stay etc.

TWO (2) TYPES OF BUSINESS ZAKAT
CALCULATION
1. Urfiiyah Method ( Capital Growth Model Method )
◦ Current capital (Business Assest Subject to zakat) = Owner’s Equity + Debt Financial Capital + Profit – Fixed Asset –
Other Non-Current Assets +/- Adjustments if any.
2.Syar’iiyah Method ( Working capital Model Method)
◦ Net Current Asset (Business Assest Subject to Zakat) = Current Asset (full ownership) – Current Operating Liability only.

Basic Items in a business
➢ Fixed assets (bangunan, mesin, dan alat alat lain)
➢ Not subject to zakat
➢ Income accrued from productive fixed asset is subject to zakat
➢ Current assets
➢ Based on the value of assets provided in the Balance sheet or
assessment on the inventory.
➢ Zakat is based on the equivalent value of the assets
➢ Zakat is imposed on accounts receivable if it is assured that the
debtor will pay back
➢ Zakat will only be imposed in the year when the debt is collected

Basic Items in a business
➢ Intangible assets
➢ E.g. Shares, patent, goodwill, bond, certificate of investment are
considered equivalent to fixed assets if they are not traded but held in
the purpose to gain dividend.
➢ If the company invested in has already paid zakat, thus the income is
no longer subject to zakat
➢ Long term liability
➢ Long term liabillity to finance/ run the business is subject to zakat
➢ Capital and Shareholders’ fund
➢ E.g. Paid up capital, premium accounts, accrued profit are subject to
zakat

Adjustments to be made to the calculation
of zakat
➢ Deduct
➢ income which are not subject to zakat such as prohibited sources
➢ amount are not wholly owned such as deposits for utilities
➢ Creditors
➢ Sources that zakat has already been paid
➢ Current assets must be productive, thus bad debts, obselete stock, depreciation are deducted
➢ Charity fund such as tabung khairat, education fund
➢ Charity fund which has the concept of rolling fund is not subject to zakat on the principal amount only.
➢ Ending inventory
➢ Those liabilities related to the business operation e.g. trade creditors, payables.
➢ Add to current assets
➢ All gift, donations paid by the company
➢ Add to current liability
➢ Not related to business operation e.g. restructuring of debt
➢ Dividend payable
➢ Overdraft
➢ Financial lease

CONDITION TO BE FULFILLED FOR ZAKAT
➢ The conditions that must be fulfilled to be subject to zakat :-
➢ Muslim
➢ A freedom person
➢ The wealth must be from halal sources
➢ Those activities prohibited against Islam cannot be included in zakat calculation
➢ Meet the nisab at the end of haul.
➢ The nisab is 2.5% or equivalent to 85 grams of gold
◦ Current Nisab: (As 24hb Feb 2021)
◦ Wilayah Kuala Lumpur RM20,299.00
◦ Kedah RM20,345.34
◦ Selangor RM20,920.00
◦ Perak, Pahang dan Johor RM20,579.75
◦ Melaka RM20,312.24
◦ Terengganu RM20,213.46
➢ Meet the haul.
➢ Must be from productive property
➢ E.g cash, shares, bond, ending inventory, fixed assets (movable or immovable), net trade receivable
➢ Full ownership

HADDUL KIFAYAH FOR INCOME ZAKAT
◦ The kifayah limit is a minimum basic necessity rate set based on the current cost of
living (JAWHAR, 2009).
◦ The meaning of kifayah is enough or sufficient what is most important to him, or what is
enough to live (Ibn Manzur, 1992).
◦ While in terms of the term kifayah limit means the necessary expenses to ensure the
needs of living by taking into account the average level of life in society either in terms
of prosperity and wealth of a society (al-Fanjari, 2010).
◦

Cont….
Based on the guidelines issued by JAWHAR 2009, the basic components of the kifayah limit taken
into account are as follows:
1) Food - Basic food and drink required or consumed by an individual and his or her dependents
who meet basic needs.
2) Clothing - Clothing required by an individual and his or her dependents who meet basic needs.
3) Coverage - Coverage for self and dependents under it includes house rent or payment of house
installments, water bills, and electricity as well as everything related to the basic needs of a
dwelling based on minimum needs.
4) Medicine - Refers to all forms of medicine, regular treatment, purchase of regular medicine,
purchase of regular medical equipment, minor treatment from any medical center and other
alternative treatments.
5) Education - Refers to the form of Education, Compulsory Education expenses, expenses related
to Personal education, family members whether at the preschool, primary, secondary, college
and university levels. It also covers the needs related to the Education such as the purchase of
equipment for learning.
6) Transport - All expenses related to paid transport (fare) by an individual and his dependents as
well as travelers required by Islamic law.

Example of Haddul Kifayah in Malaysia

Tolakan Zakat Dan Keperluan Asasi (Had Kifayah)
– WILAYAH KUALA LUMPUR
◦ https://www.zakat2u.com.my/kiraan/zakat/pendapatan?gclid=Cj0KCQiA7NKBBh
DBARIsAHbXCB51AOG8H1_5JiBKU4WUn8bG0xQwTlvG7z2rZdEK_ocdNBkw2A
z-FmUaAqP4EALw_wcB

- SELANGOR
◦ Mengikut Fatwa Negeri Selangor bahawa keperluan asasi yang sangat dihajari oleh manusia
adalah terlepas daripada kewajipan zakat. Asas had al-kifayah ialah segala keperluan asasi yang
mesti ada pada diri seseorang dan tanggungannya seperti isteri, anak-anak, ibubapa, adik beradik
dan sebagainya. https://www.zakatselangor.com.my/zakat-pendapatan/
◦ Keperluan asasi yang diambil kita dalam penentuan Had al-Kafayah adalah seperti berikut :
◦ Perlindungan
◦ Makanan dan minuman
◦ Pakaian
◦ Perubatan
◦ Pendidikan
◦ Pengangkutan

– PAHANG
◦ Had al-Kifayah secara umumnya adalah kadar (keupayaan ekonomi) yang selayaknya bagi menjamin kelangsungan
kehidupan seorang individu serta mereka yang di dalam tanggungannya. Ia bukan sekadar penentuan had
minimum semata-mata tetapi ia menjangkaui persoalan tahap yang selayaknya bagi memastikan kelangsungan
kehidupan seseorang serta tanggungannya. Item Had Kifayah bagi negeri Pahang adalah seperti berikut :
http://new.zakatpahang.my/index.php/kira-zakat/zakat-pendapatan
1.Makanan
2.Pakaian
3.Rumah kediaman
4.Utiliti
5.Kesihatan
6.Pengangkutan
7.Pendidikan
8.Komunikasi
9.Saraan moden

– KEDAH
◦ Contoh pengiraan zakat pendapatan di negeri Kedah:
◦ https://www.zakatkedah.com.my/zakat-pendapatan/
◦ Dua jenis tolakan
◦ Kaedah A (2.5% atas Jumlah Pendapatan Kasar)
◦ Kaedah B (Tolakan keperluan asas)
◦ Diri sendiri RM9,000
◦ Isteri RM3,000
◦ Anak RM1,000 seorang

6.6 Tolakan Zakat Dan Keperluan Asasi (Had
Kifayah) – NEGERI SEMBILAN
◦ Contoh pengiraan zakat pendapatan di Negeri Sembilan:
◦ Ada 2 cara mengira zakat pendapatan: https://mains.gov.my/v1/zakat/kutipan/jenis-zakat/zakat-pendapatan
1) Membayar 2.5% atas jumlah pendapatan kasar setahun (jika pendapatan melebihi nisab semasa).
Kaedah Pertama : Menggunakan Kaedah Pendapatan Kasar
Jika jumlah pendapatan kasar dari semua sumber setahun ialah sebanyak RM 33,800, maka zakatnya ialah sebanyak :-
RM 33,800 x 2.5% = RM 845.00
2) Membayar setelah ditolak perbelanjaan-perbelanjaan asasi setahun yang dibenarkan (jika pendapatan melebihi nisab semasa).
◦ Perbelanjaan yang dibenarkan tolakan:
1. Diri - RM 9,000
2. Isteri - RM 4,000
3. Anak (RM 2000 untuk bukan di IPTA/IPTS), (RM 8,000 untuk belajar di IPTA/IPTS)
4. Pemberian kepada Ibu Bapa, Caruman KWSP, Caruman Tabung Haji,
5. Caruman kepada institusi/koperasi yang telah membayar zakat.

– KELANTAN
◦ Contoh pengiraan zakat pendapatan di negeri Kelantan:
https://www.e-maik.my/v2/index.php/ms/e-perkhidmatan-kami/kalkulator-zakat-pendapatan
Tolakan Had Kifayah yang dibenarkan:
◦ Diri sendiri
◦ Isteri
◦ Anak
◦ Ibu bapa
◦ Perubatan
◦ Tabung haji
◦ kwsp

– MELAKA
◦ Contoh pengiraan zakat pendapatan di negeri Melaka. https://www.izakat.com/ui.php
◦ Tolakan had kifayah yang dibenarkan:
◦ Diri sendiri
◦ Isteri
◦ Anak
◦ Pemberian kepada Ibu Bapa
◦ KWSP
◦ Tabung Haji
◦ Perbelanjaan

– PERLIS
◦ Contoh pengiraan zakat pendapatan di negeri Perlis.
https://www.maips.gov.my/index.php?option=com_sppagebuilder&view=page&id=69&Itemid=839&lang
=ms
◦ Diri sendiri
◦ Isteri
◦ Anak
◦ Perubatan
◦ Hutang darurat
◦ Kenderaan
◦ Rumah
◦ KWSP
◦ Tabung Haji
◦ PTPTN

– JOHOR
◦ Contoh pengiraan zakat pendapatan di negeri Johor. https://www.maij.gov.my/cal/index.html
◦ Diri sendiri
◦ Isteri
◦ Anak
◦ Pendidikan
◦ Perubatan
◦ KWSP
◦ Tabung Haji

– TERENGGANU
◦ Contoh pengiraan zakat pendapatan di negeri Terengganu. http://ezakat.maidam.gov.my/ezakat/zakat/zcalpendapatan
◦ Diri sendiri
◦ Isteri
◦ Anak
◦ Pendidikan
◦ Perubatan kronik
◦ KWSP
◦ Tabung Haji
◦ Wakaf/kebajikan

– SARAWAK
◦ Contoh pengiraan zakat pendapatan di negeri Sarawak. https://www.tbs.org.my/calc-zakat/
◦ Diri sendiri
◦ Anak
◦ Sumbangan kepada Ibu Bapa
◦ KWSP
◦ Tabung Haji
◦ Sumbangan Baitulmal

METHOD OF CALCULATION ZAKAT ON
EMPLOYMENT INCOME
There are TWO (2) approaches in determining the
amount of zakat payable;
1.Multiply the rate of 2.5% on gross income for that
respective year.
2.After deducting basic expenditure (haddul kifayah)

Example of Calculation Zakat

Example..
ZAKAT ON GOLD AND SILVER
1. Gold and silver in any forms (currency, bar, ornament, grain etc)
-Nisab is 85 gram
-Rate is 2.5%
2. Gold in the form of women’s personal ornament.- Nisab is exceeding uruf i.e. the custom usage@800g gold-
Rate is 2.5%.
Contoh Pengiraan Zakat Emas di Selangor:
i. Emas tidak dipakai (simpan) = 95 gram : Dikenakan zakat sbb lebih 85 gram. (95 x RM250 contoh harga
semasa x 2.5%) Maka RM593.75 sahaja bayaran zakat yang perlu di keluarkan.
ii. Emas dipakai = 80 gram : Tidak dikenakan zakat sbb uruf emas di Selangor adalah 800 gram.
Contoh kiraan jika pakai kesemua emas di Selangor
i. Emas dipakai 1000gram – Melebihi uruf di Selangor (800gram) maka 1000 gram – 800 gram = 200 gram
ii. 200gram x harga emas semasa (contoh RM250) x 2.5% = RM1250 Zakat yang perlu dikeluarkan.
*Di Selangor zakat emas digabung dengan zakat saham dan zakat simpanan. Jika melehibi kadar nisab semasa
maka wajib bayar zakat.

Nisab Gold in Malaysia

Example..

Example..
ZAKAT ON EPF/ KWSP
◦ The concept is similar to savings but the withdrawal is not as easy as the bank’s savings
account.
◦ Only imposed upon complete ownership which when the owner make a withdrawal
from EPF.
◦ Zakat payable = Amount withdrawn x 2.5 %
◦ Ex: RM110,000 x 2.5% = RM2750

TAX
PLANNING

CHAPTER OUTLINE
◦ Overview of Income Tax in Malaysia
◦ Tax Administration in Malaysia
◦ Tax Planning Objective
◦ Importance of Taxation in Personal Finance
◦ Malaysia Personal Income Tax System
◦ Types of Assessment
◦ Component in Tax Assessment

OVERVIEW OF INCOME TAX
◦ Paying taxes is a fundamental feature of our daily lives.
◦ Depends on our level of income, we may pay more or less income tax every year.
◦ It is a common misconception that only high-income individuals should engage in tax planning.
◦ Taxes can take a big bite out of your budget, so your strategies for legally minimizing your taxes are
crucial to your financial plan.
◦ THE CHARGE TO TAX
◦ The scope of the Malaysian Income tax is specified under Section 3, of the Income Tax 1967 as follows:
◦ ‘Subject to and in accordance with this act, a tax to be known as Income Tax shall be charged for each
year of assessment upon the income of any person accruing in or derived from Malaysia or received in
Malaysia from outside Malaysia’.

TAX ADMINISTRATION IN MALAYSIA
◦ Inland Revenue Board Malaysia (LHDN)
◦ 1 Mac 1996
◦ IRBM Act 1995.
◦ Responsible for the overall administration of direct taxes under the following Acts:
◦ Income Tax Act 1967
◦ Petroleum Act 1967
◦ Real Property Gains Tax Act 1976
◦ Promotion of Investment Act 1986
◦ Stamp Act 1949
◦ Labuan Offshore Business Activity Tax Act 1990

TAX PLANNING OBJECTIVE
◦ Maximize amount of money you keep
◦ Minimize amount of money paid in taxes

IMPORTANCE OF TAXATION IN
PERSONAL FINANCE
◦ To minimize an individual’s income taxes.
◦ The higher the tax the lower is the disposable income, thus, difficult to achieve personal
financial goals.
◦ Taxes reduce our disposable income and so make it more difficult for us to achieve
some of our financial goals .
◦ How?
◦ Take into account all current and future income and develop strategies to defer or minimize tax
payments.
◦ Managing your taxes well can lead to considerable savings regardless of your income
level.

Income Tax
◦ Annual charge levied on both earned income (wages, salaries, commission) and unearned
income (dividends, interest, rents).
◦ Malaysia adopts a Progressive Tax system, which means that individuals earning higher incomes
are taxed at a higher rate compared those earning lower incomes.
◦ However, presence of tax loopholes (whose number increases in direct proportion to the
complexity of tax code) may allow some wealthy persons to escape higher taxes without violating
the letter of the tax laws.
◦ TWO (2) Types of Income tax:
◦ Personal Income Tax
◦ Corporation Income tax

Income Chargeable in Taxation

MALAYSIA PERSONAL INCOME TAX
SYSTEM
◦ Incomes of individual are taxed once a year.
◦ Person Chargeable to Tax
◦ With effect year 2013 an individual who earns an annual employment income of RM30,667
(after EPF deduction) has to register a tax file.
◦ The income earned in the previous calendar year is assessed an taxed in the Year of
Assessment (YA) which is the following year.
◦ Deadline for submission of Form BE and payment of tax payable (if any): 30 April every
year.
◦ Malaysia adopts a progressive tax system, which means that individuals earning higher
incomes are taxed at a higher rate compared those earning lower incomes.

PERSONAL INCOME TAX
◦ Paying tax:
◦ to remit a specified percentage of an individual’s income to the government
◦ through the Inland Revenue Board (IRB)
◦ as required under the Inland Revenue Act 1967.
◦ Money received by IRB is source of income for government.

TAX PAYER RESPONSILIBITY
◦ Every taxpayer who is liable to tax is required to declare his income to IRBM. The
taxpayer is responsible for:-
◦ Obtaining and forwarding Income Tax Return Form (ITRF):
◦ The taxpayer has to send or submit the ITRF that has been duly completed before
30th April every year to IRB.
◦ Declaring income and claiming expenses.
◦ Computing income tax payable.
◦ Keeping records for audit purposes.
◦ Paying the income tax payable.

TYPE OF ASSESSMENT
➢Joint/Combined assessment
➢Self Assessment System (SAS)
➢Separation/ divorce cases
➢Tax treatment on Income of deceased individuak

Method of Payment on Income Tax
◦ Payment for taxes can be made at:
◦ Selected banks using bank payment slips, internet banking, phone banking, ATMs
◦ at the Lembaga Hasil Dalam Negeri (LHDNM) offices using cheques, money orders,
bank drafts; or through FPX (Financial Process Exchange) at LHDNM website.
◦ Taxpayers are also allowed to make monthly payments to IRB directly or pay through
selected banks.
◦ For employee, the Monthly Tax Deduction (MTD) or (Potongan Cukai Bulanan) will be
deducted from the monthly salary and remitted to the IRB by the employer.
◦ Any non-payment after the due date will be an increase of 10 % in the tax amount.

COMPONENTS IN TAX ASSESSMENT
1) Chargeable Income
2) Taxable Income
3) Personal Relief and deduction
4) Rebates
5) Tax payable
http://www.hasil.gov.my/

Cont….
◦ Am I taxable?
➢An individual who earns an annual employment income of RM25,501 (after EPF deduction) has
to register a tax file.
➢With effect year 2010, an individual who earns an annual employment income of RM 26,501
(after EPF deduction) has to register a tax file.
➢If the employee is eligible for Monthly Tax Deduction (MTD), he is advised to register an income
tax file before MTD is implemented.

Planning to Reduce Your Income Taxex
1. Invest where you receive tax-advantaged income
2. Take capital losses quickly
3. Split your income
◦ One strategy is to split income among family members to take advantage of lower marginal tax
rates.
◦ This is one of the motivations for establishing educational funds for children.
◦ Individuals can give money to someone else up to certain limits without incurring a gift tax.
◦ Trusts can also be set up so that the assets and their income are used for the benefit of the
beneficiaries.
4. Stagger income and expenses
5. Defer income to later years

CONCLUSION
◦ Each person should have tax management strategies in place to minimize taxes paid.
◦ We need to understand how the following taxes impact our financial plans: income,
payroll, sales, excise, property, estate, as well as other taxes.
◦ It is important to maintain adequate tax records in financial planning.
◦ A basic understanding of state and federal income tax laws is necessary for wise
money control.

TAX RELIEF 2020 & 2021

Tax Relief 2020
http://www.hasil.gov.my/bt_goindex.php?bt_kump=5&bt_skum=1&bt_posi=3&bt_unit=1&bt_sequ=1
&bt_lgv=2

Tax Relief 2020

Individual Income Tax Amendments in
Malaysia for 2021
• Malaysia’s government has introduced several income tax amendments that
will impact individual taxpayers for 2021.
• The individual income tax has been reduced from 14 to 13 percent for resident
taxpayers in the 50,000 ringgit (US$12,375) to 70,000 ringgit band (US$17,325).
• Further, there are several tax relief schemes that residential taxpayers can
benefit from for this year and beyond.
◦ Income tax rate amendments
◦ Under Budget 2021, the government has reduced the income tax rate by one
percentage point for resident taxpayers in the 50,000 ringgit (US$12,375) to
70,000 ringgit band (US$17,325) from 14 percent to 13 percent.

Cont..
◦ Special income tax rates for non-citizens holding key positions in companies
◦ Non-citizen individuals who hold C-suite positions in companies looking to
relocate to Malaysia can receive a flat income tax rate of 15 percent. To
qualify, the individual must:
• Receive a monthly salary of not less than 25,000 ringgit (US$6,187);
• Hold the C-suite position for a period of five consecutive years; and
• Be a Malaysian tax resident for each year of assessment throughout the flat
tax rate treatment.
◦ MIDA is receiving applications until December 31, 2021, for this incentive.

Cont..
◦ Extension of tax incentives for the Returning Expert Program
◦ Under the Returning Expert Program (REP), Malaysian citizens who return to
work in Malaysia and are classified as citizens are eligible for a flat income tax
rate of 15 percent for a period of five consecutive years.
◦ In addition, they are also eligible for exemptions on import and excise duties
for the purchase of a complete built-up (CBU) vehicle or excise duty
exemption for the purchase of a complete knocked-down (CKD) vehicle,
limited to 100,000 ringgit (US$24,749).
◦ Applications are open from January 1, 2021 to December 31, 2023.

Cont…
◦ Reduction of employees’ contributions to the Provident Fund
◦ From January 1 to December 31, 2021, an employees’ contribution to the EPF has been
reduced from 11 percent to nine percent.
◦ The EPF is a compulsory saving and retirement plan for private-sector workers in Malaysia.
Employees usually contribute between 11 percent to seven percent from their monthly
salary.
◦ Tax relief on lifestyle expenses
◦ Individual taxpayers can claim income tax relief of up to 2,500 ringgit (US$618) on lifestyle
expenses, such as the purchase of computers, smartphones, tablets, and reading materials.
This has now been increased to 3,000 ringgit (US$742), where the additional 500 ringgit
(US$123) is allocated for the purchase of sports equipment, entry/rental fees for sports
facilities as well as participation fees in competitions.
◦ Moreover, the scope of the relief has been expanded to include the subscription of
electronic newspapers.

Cont…
◦ Income tax exemption on compensation for loss of employment
◦ The Income Tax Act of 1967 states that any compensation received
due to the loss of employment is taxable for individuals. However, such
individuals can claim income tax exemptions under the following
circumstances:
• 100 percent tax exemption for loss of employment due to ill health; or
• A 20,000 ringgit (US$4,949) a income tax exemption for each full year of
employment with the same employer or companies from the same
group.
◦ This is effective for the 2020-2021 year of assessment.

Cont…
◦ Tax relief for education expenses
◦ An individual taxpayer pursuing a Bachelor’s, Master’s, or
Doctorate in fields recognized by the government or Minister of
Finance are eligible for a maximum 7,000 ringgit (US$1,732) tax
relief on fees.
◦ The government has expanded the scope of this relief to include
fees for attending upskilling courses or self-enhancement studies,
recognized by the Department of Skills and Development. The
tax relief, however, is limited to 1,000 ringgit (US$247) for each
year of assessment.

Cont…
◦ Tax relief on Private Retirement Scheme
◦ The income tax relief on the contribution to the Private
Retirement Scheme (PRS) of up to 3,000 ringgit has been
extended until 2025.
◦ The PRS is a voluntary long-term investment scheme that seeks to
enhance choices for Malaysians seeking to supplement their
retirement savings.

Cont…
◦ Extension of income tax relief for the National Education Savings
Scheme
◦ The government has extended the tax relief of up to 8,000 ringgit
(US$1,980) under the National Education Savings Scheme (SSPN) on net
savings until 2022.
◦ This is a savings scheme established by the National Higher Education
Fund Corporation (PTPTN) to help parents and guardians save money
for their children’s higher education. More importantly, the SSPN
scheme enables children to continue their studies should anything
happen to their parents or guardians. It is estimated that the PTPTN will
receive some 1.8 billion ringgit (US$445 million) in deposits through the
SSPN scheme.

Cont…
◦ Income tax relief on medical expenses for medical expenses
◦ The income tax relief incurred on one’s self/spouse/children for serious illnesses has increased from 6,000
ringgit (US$1,485) to 8,000 ringgit (US$1,980) for 2021.
◦ This includes an increase from 500 ringgit (US$523) to 1,000 ringgit (US$247) for medical examination
expenses, in addition to an expansion on the tax relief to include vaccination expenses of up to 1,000
ringgit (US$247).
◦ The eligible vaccines are as follows:
• Human Papillomavirus (HPV);
• Influenza;
• Pneumococcal;
• Varicella;
• Rotavirus;
• Meningococcal;
• Combination of tetanus, diphtheria, and acellular pertussis; and
• COVID-19.

FORMULATED ISLAMIC FINANCIAL SOLUTIONS
◦ Current Zakat and Tax Payment?
◦ Calculate Zakat on Income and on Wealth?
◦ Compute Tax Obligation – Joint vs Separate assessment?
◦ Reliefs and rebates?
◦ Zakat due and tax payable?
◦ Analysis:
◦ Refer to Zakat Calculation
◦ Tax Computation
◦ Recommendation
◦ Zakat due:
◦ Tax Payable
◦ Tax saving using separate assessment

Zakat Administration & Tax Planning - Islamic Financial Planning (IFP) by dr Mohd Adib Abd Muin

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