Income Tax Brackets Explained (And How Much You Have To Pay)

Income Tax Brackets Explained (And How Much You Have To Pay)

There’s a running joke that just like a majority of the western world, Malaysia also has four seasons. But instead of the seasons being summer, winter, autumn and spring, in Malaysia we have the tax season, haze season, durian season, and the monsoon season.

One of those seasons; the tax season is now upon us, and we’re here to help you navigate this harrowing season successfully. How? We’re going to explain just how the tax income brackets work, and just how much you have to pay in your taxes.

Explaining income tax brackets

The first mistake people make is asking which tax bracket they fall into. In reality, your income is likely to cross several tax brackets – all of which apply one after another.

To begin, here’s a table of the income tax brackets for the year of assessment 2022 (tax filed in 2023).

CategoryChargeable incomeCalculations (RM)Rate %Tax (RM)
A0 - 5,000On the First 5,00000
B5,001 - 20,000On the first 5000
Next 15000
10
150
C20,001 - 35,000On the first 20,000
Next 15,000
3150
450
D35,001 - 50,000On the first 35,000
Next 15,000
8600
1,200
E50,001 - 70,000On the first 50,000
Next 70,000
131,800
2,600
F70,001 - 100,000On the first 70,000
Next 30,000
214,400
6,300
G100,001 - 250,000On the first 100,000
Next 150,000
2410,700
36,000
H250,000 - 400,000On the first 250,000
Next 150,000
24.546,700
36,750
I400,001 - 600,000On the first 400,000
Next 200,000
2583,450
50,000
J600,001 - 1,000,000On the first 600,000
Next 400,000
26133,450
104,000
K1,000,001 - 2,000,000On the first 1,000,000
Next 1,00,000
28237,450
280,000
LExceeding 2,000,000On the first 2,000,000
Next Ringgit
30517,450
.....

As you can see from this table, the rate at which you will be taxed is determined by how much chargeable income you make annually. These tax brackets are imposing on a progressive scale. Which means that you won’t be charged a 13% income tax rate if you earn RM70,000 a year.

Your income is divided up first – and each section is taxed at a different rate. For example:

Your annual income is RM50,000 a year.

The first RM5,000 you earned is not taxable – you pay nothing.

The next RM15,000 you earned is taxed at 1%, so you pay RM150.

The next RM15,000 is taxed at 3%, so you pay RM450 for this bracket.

The next RM15,000 is taxed at 8%, so you pay RM1,200 for this bracket.

So the total tax you pay is RM150 + RM450 + RM1,200 = RM1,800.

This is lower than if you were just taxed 8% on the whole RM50,000 (which would be RM4,000).

The table above simplifies the calculation by giving you the total amount of taxes in the brackets before your highest bracket (because you are taxed the maximum amount in those brackets). This is what it means when it says “On the first XXXXX amount”.

Determining your chargeable income

So how exactly do you calculate your chargeable income?

Your chargeable income is total annual income, minus all your applicable tax relief and tax deductions.

Here’s an example to help you visualize it;

From this image, you can see that Ash’s total annual income (which means the salary from his job plus any other money he earned in the year) is RM84,300. But what’s his chargeable income?

Here’s Ash’s chargeable income;

So as you can see from this mini infographic, Ash falls into Category E in the income tax bracket. For Category E, he will be taxed 13% of his chargeable income for the first RM50,000, and another 13% for the next RM20,000, which means that he needs to pay RM6500 in taxes for this year.

How does a change in income tax rate affect you?

As you no doubt already know, Budget 2023 announced a 2% income tax reduction for the tax brackets between RM35,000 and RM100,000. This doesn’t mean that the total amount that you are taxed is being reduced by 2%, but rather that the tax rate in each bracket is being reduced.

For example, this is what the new tax brackets will look like:

CategoryChargeable incomeCalculations (RM)Rate (%)Tax (RM)
D35,001 - 50,000On the first 35,000
Next 15,000
6600
900
E50,001 - 70,000On the first 50,000
Next 20,000
111,500
2,200
F70,001 - 100,000On the first 70,000
Next 30,000
193,700
5,700

So, if your chargeable income in 2023 is RM100,000 or more, then you would see a total tax reduction of RM1,300 (which is a 12% decrease). But if your chargeable income was RM50,000, then your total tax would only be reduced by RM300 (an effective reduction of 17%).

Have more questions?

So there you have it, a breakdown of all the tax income brackets, and how to find out where you belong to in the tax income brackets.

Still have questions about income tax? Why not check out our complete and comprehensive income tax guide right here.

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