This article will explain how PCB/MTD tax calculations are worked out within a pay run.
In order to see a breakdown of these calculations within a pay run, you'll need to click on the ‘?’ icon under the ‘PCB (Tax)’ column for the relevant employee. Once you do that, a calculation panel will display detailing how the tax has been calculated:
Employee payroll history data
It is important that the employee's pay roll history data from previous employment (via TP3 form) is provided to the current/new employer where the employee has started employment part way through the year so that the amounts can be included in the calculation of taxable income.
If previous payroll history data are not imported into the system for the employee, this will incorrectly calculate the employee's PCB.
How is PCB/ MTD calculated?
In short, the PCB calculation consists of estimating the annual taxable income of the employee, then deducting allowable deductions/ rebates to determine the annual chargeable income. Using the annual chargeable income, the yearly tax is then determined to work out the PCB tax for the number of months remaining in the year. The tax are retained by the employer and paid over to the Lembaga Hasil Dalam Negeri Malaysia (LDHNM), known as the Inland Revenue Board Malaysia (IRBM).
The PCB tax calculation follows the LDHN computerised calculation. The detailed calculations broken out into 4 calculations:
- Normal remuneration
- Additional remuneration
- Returning Expert Program (REP)
- Knowledge worker
Normal remuneration
Example of current month MTD calculation panel:
To calculate the normal remuneration:
Step 1 MTD yearly net remuneration (exclude any additional remuneration):
MTD (A) = [((P-M)R + B - ( Z + X) )/n+1] - Zakat/Fitrah/Levy for current month
P value is determined by this formula:
[∑(Y – K*) + (Y1 – K1*) + [(Y2 – K2*) n] + (Yt – Kt*)**] – [D + S + DU + SU + QC + (∑LP + LP1)].
∑(Y – K) Total accumulated net normal remuneration and net additional remuneration
for the current year, paid to an employee prior to the current month, including
net normal remuneration and net additional remuneration paid by previous
employer, if any;
Y Total accumulated gross normal remuneration and gross additional
remuneration for the current year, paid to an employee prior to the current
month, including gross normal remuneration and gross additional
remuneration paid by previous employer, if any;
K Total contribution to Employees Provident Fund or other approved scheme
paid in respect of Y, if any, subject to the total qualifying amount per year;
Y1 Gross normal remuneration for the current month;
K1 Contribution to Employees Provident Fund or other approved scheme paid in
respect of Y1, subject to the total qualifying amount per year;
Y2 Estimated remuneration as Y1 for the subsequent months;
K2 Estimated balance of total contribution to Employees Provident Fund or other
approved scheme paid for the balance of qualifying months [[Total qualifying
amount per year – (K + K1 + Kt)] / n] or K1, whichever is lower;
Yt – Kt Net additional remuneration for the current month;
Yt Gross additional remuneration for the current month;
Kt Contribution to Employees Provident Fund or other approved scheme paid in
respect of Yt, subject to the total qualifying amount per year;
N Balance of month in a year;
n + 1 Balance of month in a year, including current month;
D Deduction for individual (this is automatically applied);
S Deduction for husband or wife; (specified in employee statutory settings. You can only claim for husband or wife if they are not working);
DU Deduction for disabled person (this is determined from the employee tax relief screen);
SU Deduction for disabled husband or wife (this is determined from the employee tax relief screen);
Q Deduction for qualifying children (this is determined from the employee tax relief screen);
C Number of qualifying children (specified in employee statutory settings and employee tax relief screen).
Value of D, S and C are determined as follows:
(i) Category 1 = Single:
(ii) Category 2 = Married and husband or wife is not working:
(iii) Category 3 = Married and husband or wife is working, divorced or widowed, or single
with adopted child:
∑LP Accumulated allowable deductions in the current year, including from
previous employment, if any;
LP1 Allowable deductions for the current month;
M Amount of the first chargeable income for every range of chargeable
income a year;
R Percentage of tax rates;
B (or T for REP) Amount of tax on M after deduction of tax rebate for individual and
husband or wife, if qualified;
Z Accumulated zakat paid in the current year other than zakat for the
current month;
X Accumulated Monthly Tax Deduction paid for the previous month in the
current year, including payment from previous employment, but shall
not include additional Monthly Tax Deduction requested by the employee
and payment of tax instalment.
Upon getting the value of P, the value of M, R and B are determined based on below where the value of B depends on the category of employee. The values will depend on when your payrun is created
For pay run created and finalised before 12 June 2023
For pay run created and finalised after 12 June 2023
For residents, the tax rate starts at 1% (on the first RM5,000) to a maximum of 30% on chargeable income exceeding RM2,000,000. Non-resident individuals pay tax at a flat rate of 30%.
Step 2 - Determine Yearly MTD
MTD (B)= (X) + [ Current Month MTD (n+1)]
Step 3 - Yearly Tax (for additional remuneration)
CS = (P-M)R + B
Step 4 - Additional remuneration MTD
MTD C = CS - [ MTD (B) + Accumulated Zakat that have been paid]
Step 5 - MTD current month
MTD (A) + MTD (C) = Net MTD.
Additional remuneration
Additional remuneration means any additional payment to the normal remuneration for the current month paid to an employee whether in one lump sum, periodical, in arrears or non-fixed payment.
- Additional remuneration includes:
- bonus/incentive;
- arrears of salary or any other arrears paid to an employee;
- employee’s share option scheme (if employee opts for MTD deduction);
- tax borne by employer;
- gratuity;
- compensation for loss of employment;
- ex-gratia;
- director’s fee (not paid monthly);
- commissions (not paid monthly);
- allowances (not paid monthly);
- any other payment in addition to normal remuneration for current month.
Example of the additional remuneration calculation panel, showing the additional section and line item:
The calculations for additional remuneration are included above with the normal remuneration, specifically step 3 and 4.
Returning Expert Program (REP)
An approved employee under REP will be taxed at a rate of 15% from their chargeable income. If the chargeable income does not exceed RM35,000, the employee is eligible for individual and spouse rebate for RM400, respectively.
The net MTD formula for an employee under REP:
Net MTD = MTD current month – zakat for the current month
The formula to find ‘MTD current month’ for REP is:
( PR – T ) – ( Z + X )/n+1
To determine P value, follow the same steps as indicated in normal remuneration calculation above. Upon getting the value of P, the value of T is determined based on the table below, where the value of T depends on the category of employee.
Example of REP calculation panel, highlighting the area of differences eg. 15% tax rate and .
Knowledge worker
A tax rate of 15% will be charged to a qualified Knowledge worker. The net MTD formula for a Knowledge worker:
Net MTD = MTD current month – zakat for the current month
The formula to find ‘MTD for the current month’ used is:
( PR ) – ( Z + X )/ n + 1
To determine P value, follow the same steps as indicated for normal remuneration above however R is the percentage of tax rate, which for a Knowledge worker is fixed at 15%.
Example of Knowledge worker calculation panel, highlighting the area of differences eg. 15% tax rate.
LDHN tax calculator
To compare the system's PCB/MTD tax calculation, you can refer to the LDHN tax calculator.
Tax checklist
If you believe the tax is incorrect, there are a few things to check which may highlight the issue:
- Have you entered any payroll history for the employee?
- Check relevant deductions by going to the Employee file > Tax relief page;
- Check the Employee file > Statutory details page to ensure all settings are correct;
- Has the employee already reached the threshold amount for tax reliefs that they are receiving?