If you are a gig worker who has a laidback attitude about taxes, it’s probably time for you to start taking things a little more seriously.
A gig worker is defined as “a person who does temporary or freelance work, especially an independent contractor engaged on an informal or on-demand basis”. While the concept is not new to us Malaysians, the catchy name and influx of informal work arrangements during and after the disruptions of the pandemic have put it firmly on the map.
Gig workers vary widely, ranging from the makcik who sells nasi lemak or the neighbour who offers home tuition or cleaning services to make ends meet, to graduates providing professional services like freelance writing, graphic design and IT support to clients based in other countries.
With such wide variations in scope and earning power, it begs the question – do gig workers need to declare their income and file taxes like every other full-time employee?
Thenesh Kannaa, Partner at TraTax and ACCA Expertlink panel member for Taxation, sets the record straight with three important facts every gig worker should know:
#1. You can easily get your Tax Identification Number online
The process of applying for a tax file number, also known as Tax Identification Number (TIN) is simply and can be done online at https://mytax.hasil.gov.my/ within just a few minutes [iii]. It’s so simple you may also do it from your mobile phone. There is now no need to head to the Inland Revenue Board of Malaysia (LHDN) office with a physical application form, but you would certainly be welcomed if you choose to drop by the LHDN office to register manually. The choice is yours!
#2. All income (full-time or otherwise) is taxable and must be declared
For most people who hold permanent jobs, their employers provide them with an EA form every year that contains information such as the total amount of income earned from the said employer as well as their Employees Provident Fund (EPF/KWSP) and Social Security Organisation (SOCSO/PERKESO) deductions.
However, if you have any other source of income, such as rentals from any property you own, as well as gig income earned from occasional or recurring jobs, these must be declared too. This includes side income from food delivery gigs, emceeing at events, driving an e-hailing vehicle, operating a home-based bakery and other forms of work that are often seen to be informal.
- You could have a full-time job, for which you are already paying taxes, and also be a gig worker in your own time.
- You could be doing gig work as your only source of employment or income.
In both cases, you need to declare all your income but…
#3. Not everyone will actually need to pay taxes!
You heard right. In both the scenarios above, you have a responsibility to declare all your income but, depending on how much you earn, you may not need to pay any taxes at all. This is because those earning less than RM3,400 per month on average will not have to pay any income tax, although still required to file a tax return to satisfy the compliance requirement. [iv]
For gig workers who need to file taxes for the first time, here are some tips for you to smoothen the process:
Ascertain your income
Know how much of your income is actually taxable. Having a spreadsheet or other software clearly identifying how much you are making and how much income to declare will help.
Be diligent in keeping records of your expenses
Record-keeping of business expenses (vs private/domestic expenses) is very important. Don’t forget to keep track of all your spending as part of your gig work!
Capital allowances – understand and utilise them
Capital allowance is similar to a tax-deductible expense on qualifying assets in the production of your income. Certain items that are purchased for the purpose of providing your service, be it a new oven for a home-baking business to a motorcycle for the purpose of making deliveries, may be applicable for tax depreciation/capital allowances claims (which means you end up paying less taxes, if you are required to pay any at all).
Don’t forget personal tax relief deductions
This is given to every taxpayer in Malaysia for personal expenses. So for these expenses, there does not have to be incurred in relation to your gig income. Every year, there is a complete list of various exemptions ranging from dependents and medical costs to education and lifestyle so be sure to look them up on the LHDN website.[v] Compiling the necessary receipts for this will help reduce your tax load as well.
Thenesh recommends professional help from a tax agent licensed by the Ministry of Finance or you can also visit the nearest LHDN branches, equipped with all your receipts and other records of your income and business-related expenses, so they can assist you accordingly.
“Needless to say, there are consequences to failing to declare your taxes, which range from hefty fines if you are audited as you will be required to pay all your backdated taxes in addition to a penalty, and poor tax records can lead to difficulties in future financial situations such as applying for bank loans”, explains Thenesh.
Ultimately, the take-home message is simply this – as a gig worker, you do need to declare your income, no matter how much (or how little) you earn. The deadline for manual filing is on 30 April and e-filing 15 May but if your gig income qualifies as a ‘business income’, you have until 30 June (manual filing) or 15 July (e-filing). So don’t forget to file your taxes soon!