Despite being relatively new, the gig economy is flourishing here in Malaysia. Here’s how to file your income tax if you’re a gig worker.
The term “gig economy” was coined by English journalist/author Tina Brown in 2009 in the aftermath of the global economic recession to describe a work-world dominated by free-floating projects, consultancies, and part-time bits.
During the past few years, the gig economy has seen a meteoric rise. The trend has been further accelerated by the pandemic and new normal. In fact, some industry leaders believe that by 2030, half the workforce and supply of talent will be gig workers!
Are you a part of the gig economy?
The gig economy is also known as Sharing Economy, Collaborative Economy, Digital Economy, Crowd Economy, and Peer Economy. It is an economic model where flexible jobs are commonplace and companies tend to hire contractors and freelancers rather than full-time employees.
There are three main components in a gig economy:
Freelancers and independent workers who paid on specific tasks
Customers who want specific services
Companies connecting gig workers to available jobs via digital platforms such as GrabFood, Foodpanda, TaskRabbit, BungkusIt, as well as e-hailing services such as Grab and MyCar.
I am a gig worker. How do I pay income tax?
Gig economy workers are individuals who are self-employed and free, and are focused only on the job scope and the duration that has been decided with the payment already agreed upon.
According to Deputy Human Resource Minister Datuk Awang Hashim, gig economy workers in the country are not included under the definition of a worker under the Employment Act 1955 (Act 265); Labour Ordinance (Sabah Chapter 67) and the Labour Ordinance (Sarawak Chapter 76).
Therefore, the income tax filing process will be a bit different compared to employed workers. Gig workers will need to take certain extra steps as they will be affected by the following:
The EA form is a document that is provided by employers to their employees, summarising details such as their annual earnings, as well as EPF and SOCSO contributions for the year. Gig workers and freelancers will need to go through the extra step of tabulating their own profits by checking their invoices and expenses.
Monthly Tax Deduction (MTD)
Also known as PCB, these are monthly deductions that serve as advanced tax payments. Employers usually allocate a portion of each employee’s salary each month for this purpose. Freelancers and gig workers, on the other hand, are not enrolled in the MTD programme. As such, they will need to pay the full sum at the end of every year, which can be quite a hefty amount.
If you’ve not registered your freelance work as a business, then you will still be using the BE form – which is intended for individuals who do not own a business. On the other hand, if you have registered your work as a business, then the right form to use is the B form instead.
For part-time freelancers, you will need to fill in the income that you earn from your day job under “Statutory income from employment”, and the income from your freelance work under “Statutory income from interest, discounts, royalties, pensions, annuities, other periodical payments, and other gains and profits.”
Meanwhile, full-time freelancers will log all their earnings under “Statutory income from interest, discounts, royalties, pensions, annuities, other periodical payments, and other gains and profits.”
Am I entitled to any tax exemptions, deductions, or reliefs?
Yes, you are! some exemptions that you can tap into include:
Exemption of up to RM10,000 for publication of artistic works, recording discs, or tapes
Exemption of up to RM12,000 for the translation of books and literary works
Exemption of up to RM20,000 for the publication of literary works, original paintings, or musical compositions
50% exemption of statutory income derived from research findings that have been commercialised
Full-time freelancers can also consider tapping into the Self-Employment Social Security Scheme (SESSS) and the EPF Voluntary Contribution (i-Saraan) programme to reduce the amount of taxable income. Essentially, the SESSS and i-Saraan contributions are the equivalents of the Social Security Organisation (SOCSO) and Employees Provident Fund (EPF) contributions, but for self-employed individuals (including freelancers).