Sei sulla pagina 1di 68

Chapter 1

Overview of
Malaysian Tax

Topics Addressed

Importance of Taxation
Federal Governments tax revenue
Profile of the Inland Revenue Board
Taxes under the preview of the Inland
Revenue Board
Basis of Malaysian income tax
Taxation system in Malaysia

Taxation
A fee charged (levied) by a government on a product/
income/activity
Government
Main source of revenue
Government expenditure
Financing for development

Taxes In Malaysia
2 Types :
Direct taxes (on person/corporate)
income tax
petroleum income tax
stamp duties and
real property gains tax.
Indirect taxes (price of good/service)
import duties
excise duties
sales tax and service tax.

Federal Tax
Revenue

Source: Ministry of finance

Government revenue consists of three components direct taxes,


indirect taxes and non-tax revenues. Direct taxes consist of income
taxes from companies, cooperatives individuals, petroleum and other
taxes, as well as estate duty, stamp duty, real property gain tax and
others. Indirect taxes consist of export duties, import duties, sales tax,
services tax, taxes on commodities such as rubber, tin, palm oil and
others. Non-tax revenue consists of dividends from GLCs, road tax,
licenses and permits and revenue from federal territories.

Profile of the
Inland
Revenue
Board of
Malaysia
(IRB)

Profile
Prior to March 1996, known as the Department of
Inland Revenue Malaysia (under the Ministry of
Finance).
Became a Statutory Board on the 1st of March,
1996.
Generally speaking the Inland Revenue Board
(IRB) is responsible for:
formulation of new tax policies for both the
private and public sectors,
tax collection; and
compliance enforcement.

Specific Functions
Act as an agent of the Malaysian Government and to
provide services in administering, assessing, collecting and
enforcing payment of taxes under the IRB.
Advice the Malaysian Government on matters relating to
taxation and to liase with the appropriate Ministries and
statutory bodies on such matters;
Participate in or outside Malaysia in respect of matters
relating to taxation;
Perform such other functions as are conferred on the
Board by any other written law;
Act as a collection agent for and on behalf of any body for
the recovery of loans due for repayment to that body under
any written law.

Taxes under the purview of IRB


Relevant
legislation

Types of taxes

Income Tax Act 1967

Income tax

Petroleum Income Tax Act 1967

Petroleum tax

Real Property Gains Tax Act 1976

Real property gains tax

Stamp Duty Act 1949

Stamp duty

Estate Duty Act 1991

Estate duty

Basis of
Malaysian
Income Tax

Scope of Taxation
Sec 3 of ITA 1967 :
A tax 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 ( foreign source income).
With effect from YA 2004, foreign source income
received by any person ( other than a resident
company carrying on the business of banking,
insurance, sea or air transport) will be exempted from
income tax.

Income versus Capital


Capital gains are not chargeable to income
tax.
ITA 1967 does not define income nor
capital.
Case law can provide guidance.
Involves examination of badges of trade.

14

Characteristics of Income
Repetitive from a source of income and
received in the ordinary course of business.
Periodical return coming in with some sort
of regularity or expected regularity from
defined sources.
Nature of gains or profits has to fall into any
of the sub-paragraphs under section 4 and 4A
of ITA 1967.

15

Sec 4 of ITA 1967


Classes of Income:
Profits or gains of a trade, business,
profession or vocation;
Profits or gains from personal services
employment.;
Dividends, interests and discounts;
Rents, royalties or premiums;
Pension, charges or annuity or other
periodical payments; and
Gains or profits not falling under any of the
foregoing paragraphs;
16

Income of Non-Resident Person


Subject to Income Tax (Sec 4A of ITA
1967)
Any consideration for services rendered by him or his
employee in connection with the use of property or
rights belonging to, or the installation or operation of
any plant, machinery or other apparatus purchased
from the non-resident;
Any consideration for technical advise, assistance, or
service rendered in connection with technical
management or administration of any scientific,
industrial or commercial undertaking, venture, project
or scheme;
Rent or other payments made under any agreement
or arrangement for the use of any movable property. 17

Examples:
Revenue
Business income, employment income, rent
and dividends
Capital
Gains from realization of investments, personal
assets and from gambling activities

Payments to non-residents
Payment for use of rights, technical advice or for
rental of movable properties
18

Person
Includes:
Company
A

body of persons

Unincorporated

body of persons (not being a


company), including a Hindu joint family but
excluding a partnership.
Include

trust, club, co-operative societies and

etc.

Corporation sole -- Individual.

Individual

Territorial Basis
Income is assessed on a territorial basis.

Therefore, only income accruing in or derived from


Malaysia is chargeable to tax.

Foreign income is not taxable.


This rule is applicable to both resident and non-resident
persons, including companies
An exception applies to resident companies involved in
banking, insurance, and sea and air transportation which
are assessed on a worldwide basis ie income, wherever
derived, is chargeable to tax in Malaysia.
20

Accrued
Carries the meaning earned or right to
receive.
Does not mean received.
Income from a particular source can be earned
and received in the same period.
Note that the earned and the right to receive is
different from having received

Example
A payment for sales of RM5,000 (the sum) made in
15 Dec 2011 to a customer was due on 31 December
2011 but the trader received it only on 1 January
2012.
Tax implications
The payment accrued in Dec 2011
The sum was received in Jan 2012
The sum will be taxed in the year of assessment
2011 since it was business income that accrued in
Dec 2011. It is immaterial that the sum was
received the following year.

Derivation rules
Rules on the derivation of the various
income differ according to the source of
those income and are specified under the
law.

Derived
Sec 4 of ITA 1967 - Classes of Taxable
Income

Derived has been defined in the Act according to the


sources of income as follows:
Section

Sources of income

Derivation section

S4(a)

Business

12

S4(b)

Employment

13(2) and 13(3)

S4(c)

Dividends, interest and 15


discounts

S4(d)

Rents, royalties and


premiums

15

S4(e)

Pensions, annuities
and other periodical
payments

17(1) to 17(3)

S4(f)

Special
classes
of 15A
income
Gains or profits not falling
under
any
of
the
foregoing paragraphs

Derived
Malaysian Derived Employment Income
Gross income in respect of gains or profits
from an employment for any period during
which the employment is exercised in
Malaysia; shall be deemed to be derived
from Malaysia.

Exercise

Dr. Sarah, a computer programmer signed an


employment contract in India with PCK Ltd (a Indian
government owned company) on the 31st of December
2009. With effect from 1 January 2010, she was assigned
to Malaysia by PCK Ltd to assist Jonker Sdn Bhd (a client
of PCK) in developing its computerized container
handling system. Seventy percent of her remuneration
for 2010 was received in India. The remainder was paid
in Malaysia.
Issue: Sarah wants to know whether the portion
received in India will be taxed in Malaysia.
Discussion: The portion received in India is derived from
Malaysia because it relates to a period during which the
employment was exercised in Malaysia. Therefore, the
income will be taxed in Malaysia although it was received in
India.

Malaysian Derived Business


Income
Income from a business source that is
attributable to operations of the business being
carried out within Malaysia is deemed to be
derived from Malaysia.

Malaysian Derived Business


Income
I-Plus Sdn Bhd is a Malaysian
resident company, involved
in the provision of business consultancy services. It has a
branch in Hong Kong. I-Plus has signed a contract with a
commercial bank in Hong Kong, to provide consultancy
service for the banks strategic management of branches
in Hong Kong. The service was provided by I-Pluss
employees stationed in Hong Kong. The duration of the
project is expected to be for a period of at least 20
months. Work on the project commenced in January 2010.
I-Pluss financial year ends on December 31.
Advise the Financial Controller of I-Plus Sdn Bhd on
whether the income from the Hong Kong project is
derived from Malaysia.
Discussion: Income derived by I-Plust from the Hong Kong
contract for the year of assessment 2004 is not deemed to be
derived from Malaysia as it is clearly attributable to a project
carried on outside Malaysia

Paragraph 28 of Schedule 6 to ITA


1967
Foreign source income received by any person
(other than a resident company carrying on the
business of banking, insurance, sea or air
transport) will be exempted from income tax.

Scope of Charge Individuals


Up to year 2003, a resident individual was taxed
upon Malaysia source income and foreign source
income remitted back.
With effect from year 2004, individuals (resident
and non-resident) are assessable only on income
accrued in and derived from Malaysia.
Foreign source income is exempted from income
tax by virtue of paragraph 28, Schedule 6 of the
Income tax Act 1967.
Capital gains on the other hand are not subject to
income tax as the Income Tax Act 1967 only imposes
tax on transactions that are 'income' in nature.

Question
Mike , a Germany national, is a Malaysia non-resident
for year 2009. His income for the year consists of
commission from Malaysia as well dividends from an
investment in Germany. The dividend income was
remitted back to Malaysia in the year of assessment
concerned.
Issue: Determine whether the dividend income
derived from Germany should be subject to Malaysian
income tax.
Discussion:
The dividend income derived from Germany is exempted from
Malaysian income tax by virtue of Schedule 6, paragraph 28 of
the Income Tax Act 1967.
The dividend income would be exempted from Malaysian
income tax even if Tanakura was a Malaysian resident for year
2009.

Capital Receipts
Capital gains are not chargeable to income tax.
Example :
Realization from long term investments.
Realization from personal assets.
Windfall, gambling or profits from speculative
activities.
Gift

World Income Scope


Resident companies carrying on the business of
banking, insurance, shipping and air transport are
assessed under the world income scope.
Income wherever derived would be taxed in Malaysia
on an accrued basis.
Whether the income is remitted into Malaysia is of no
relevance.
If the foreign income has also suffered foreign tax,
bilateral relief or unilateral relief would be accorded
accordingly.
33

Scope of Charge of
Income Tax (from YA
2004)
Income

Capital
Other Income

No Tax

Received in Msia from


outside Malaysia

Resident bank, insurance,


sea and air transport

Taxed

Offshore business
activity income by
offshore company
Accrued in or
derived from
Malaysia

Not
Chargeable

Other Persons
:Resident/nonresident

Exempted from
Income Tax

Taxed
irrespective of
resident status
of person

(Sec. 3B)

Income Tax Rate


for Resident
Individuals

Income Tax
Rate
Individual
Resident: scale rate based on level of income 0% to 26%
Non-resident: Flat rate 28%
Company with paid up capital 2.5 million= 24% for YA2016
Basically, Tests:
Determine the receipt is income in nature
The income is accrued within the relevant period for income
tax purposes
Whether the income stream from Malaysia

Tax rate for resident individual (year of assessment 2016 onwards)


Chargeable Income
0-2500
2,501-5,000
5,001-10,000
10,001-20,000
20,001-35,000
35,001-50,000
50,001-70,000
70,001-100,000
Exceeding 100,000

Calculations (RM)
On the First 2,500
Next 2,500
On the First 5,000
Next 5,000
On the First 10,000
Next 10,000
On the First 20,000
Next 15,000
On the First 35,000
Next 15,000
On the First 50,000
Next 20,000
On the First 70,000
Next 30,000
On the First 100,000
Next RM

Rate %
0
0
1
1
5
10
16
21
24

Tax(RM)
0
0
0
50
50
100
150
750
900
1,500
2,400
3,200
5,600
6,300
11,900
12,000

If chargeable income is $80,000 for the year 2016, compute the amount of tax
payable:
Resident: 5,600 + (21% x $10,000))
$7.700

Non-resident: 28% x 80,000


$22,400

Computation
of Income tax
Payable

38

Computation of Income tax


Payable
Steps
: Compute
1: The statutory income (SI) from each
source.
2: Aggregate income (AI).
3: Total income (TI).
4: Chargeable income.
5: Tax chargeable.
6: Tax payable.

39

Computatio
n of
Statutory
Income
from
Business
(Approach
Note: Computation
of SI
1)
from business has to be
done separately for each
business
source
as
balancing
charges
and
capital
allowances
are
source specific.

Gross Income
Less: Allowable expenses
Less: Double deduction of
expenses
Less: Special deductions
(S34(6) of ITA 1967)
Adjusted Income
Add: Balancing charges [SP > TWDV]
Less: Balancing allowances [SP < TWDV]
Less: Capital allowances (IA and AA)

Statutory Income

Computatio
n of
Statutory
Income
from
Business
(Approach
2)

Profits before
Taxation
Add: Disallowed expenses
Less: Expenses which qualify for double
deduction
Less: Non-business income or Capital
receipts
Adjusted Income

Computatio
n of
Statutory
Income
from NonBusiness
Sources

Gross Income
Less: Allowable expenses

Statutory Income

Computatio
n of
Aggregate
Income
Unabsorbed
business loss can
be set-off against
any
business
source.
Unabsorbed
business losses can
be carried forward
indefinitely.

Aggregate
Statutory Income
from Business
Sources

Less : Previous years business losses


Add : Statutory income from other
sources
Aggregate Income

Computatio
n of Total
Income
Only adjusted loss
from business can
be set-off.
Unutilized portion
can
be
carried
forward to next YA
to
be
set-off
against aggregated
SI from business.

Aggregate Income

Less : Current year business losses


Less : Approved donations

Total Income

Approved Donations
Cash donation to approved institution, Government,
State Government and local authority.
Donations to approved institutions restricted to 10% of
aggregate income (in the case of companies), & 7% of AI
(individual).
Donation of artifact, manuscripts or painting (value as
determined by Department of Museums and Antiquities)
to Government.
Donations of painting (value to be determined by
National or State Art Gallery) to National or State Art
Gallery.

Approved Donations
Cash donation to approved libraries.
Restricted to RM20,000.
For the provision of library facilities to public or
school libraries, university or colleges.
Donations of cash or goods (value to be determined
by local authority) for the provision of facilities in public
places for the benefit of disabled persons.
Available only to individuals.
Donations of cash or in kind of medical equipment
(value to be certified by Ministry of Finance) for the
healthcare facility approved by the Ministry.
Restricted to RM20,000 cash.

Total
Income

Less: Personal Reliefs


[For Resident
Individuals]

Computatio
n of Tax
Payable

Chargeable Income

Tax Rates
Tax Chargeable

Less: Tax Credits & Rebates


[for Resident
Individuals]
Tax Payable

Net profit before


tax
Add
Less

Non-Allowable expenses
Double deductions
Adjusted income

Add
Less

Balancing charges
Capital allowances and balancing allowances & Unabsorbed
capital allowances b/f (Max: to adjusted income; balance c/f)
Statutory income
** Add all: Aggregate Statutory income from business source

Less

Previous years business loss b/f

Add

Statutory income from other sources

Less

Current year business loss


Approved donations (Sec. 44(6), 44(6A), 44(8)...

Aggregate income

Total income
Less

Less

Personal relief

Chargeable
income

X Tax Rates (%)

Tax Chargeable

Tax Credit & Rebate

Tax Payable

Taxation
System in
Malaysia
NEXT WEEK!!!

Basis periods
Income is taxed on an entity in relation to a time
frame.
In income tax law, these time frames are
constituted by accounting or financial periods,
basis periods and year of assessment
The current year assessment system (CYA)
operates with effect from the year of assessment
2004.
50

BASIS PERIOD (YA 2004 AND


SUBSEQUENT YAs)
Basis year for a YA= Basis period for that YA
BASIS PERIOD

CLOSING ACCOUNTS
31 DECEMBER

CLOSING ACCOUNTS
NON-31 DECEMBER

Basis period for YA 2011


= Calendar year 2011
(1.1.2011-31.12.2011)

If closing accounts 31 May;


FY 1.6.2010 31.5.2011 shall
be the basis period for YA 2011

This simply means that the income earned in the


period 1 Jan to 31 Dec 2011 would be taxed for
the period 1 Jan to 31 Dec 2011 for the year of
assessment 2011.

52

Basis period for individuals


Example:
Arvind (an individual) commenced employment
on 1 Jan 2011 and worked till 31 Dec 2011.
The calendar year, basis period and the year of
assessment in relation to the employment income
would be as follows:
The calendar year is 2011
The basis year is 2011
The year of assessment is 2011
53

2. Company, trust, co-operative society


In the case of a company, trust or co-operative
society, the basis year for a year of
assessment in relation to a source shall
constitute the basis period for that year of
assessment.
It would encompass all sources of income i.e.
business, dividend, rent etc.
54

Accounts to 31 Dec
Example: Cyber Sdn. Bhd. (a limited
company) closes its accounts to 31 Dec
2011. It has business income and dividend
income
The calendar year 2011 will form the basis
period for the year of assessment 2011.
It will apply to all the sources of income i.e.
business income and dividend income.
55

Accounts other than 31 Dec


If the company, trust or co-operative society closes the
accounts to a date other than 31 Dec, then the financial
period of 12 months ending on the accounting date
would be the basis period for the relevant year of
assessment.
Example: Jaya Sdn. Bhds accounting date is 30th June.
In the calendar year 2011, it closed its accounts to 30 th
June 2011.
The financial period is 1 July 10 30 June 11
The basis period is 1 July 10 31 June 11
The year of assessment is 2011
56

3. Taxpayers other than companies


The law on basis period and year of assessment
was changed w.e.f. YA 2004
It affects all taxpayers other than company, trust
body and co-operative society.
In other words, it affects the following tax entities:
sole proprietors, individual partners, employees
deceased persons, clubs and trade associations

57

In respect of those entities mentioned in the


previous slide, the calendar year basis will apply to
all sources of income, namely business income,
employment income and investment based
income like dividends, interest etc.
Example: Ah Long (an individual) commenced
his money lending business on 1 Jan 2010 and
proposes to close his accounts to 30 April each
year.
What is the implication for tax purposes?
58

As Ah Long is an individual engaged in a sole


proprietorship business of lending money.
For income tax purposes, the calendar year will
be basis year for the relevant year of
assessment.
Ah Longs accounts for the year ended 30 April
2011 will be ignored.
59

The relevant period for the relevant year of assessment


will be:

1 Jan 2010 30 Apr 2010


YA 2010
1 May 2010 31 Dec 2010

1 Jan 2011 30 Apr 2011


1 May 2011 31 Dec 2011

YA 2011
60

If Ah Long had other sources of income like rent


and dividends, these income from the relevant
sources will be assessed on a calendar year
basis.
In such a situation what would you advice Ah
Long?
For accounting, management and income tax
purposes, it would be advisable for Ah Long to
prepare the accounts to the year ended 31 Dec.
Furthermore, it would be more tax efficient.

61

The self assessment system

The self-assessment system (SAS) - taxpayers are required by law to


determine their taxable income, compute their tax liability and submit
their tax returns based on existing tax laws and policy statements
issued by the tax authorities.

A notice of assessment would not be issued under SAS. The tax


return furnished by the taxpayer is deemed to be a notice of
assessment.

The Inland Revenue authorities would check and verify tax returns
through tax audits and the implementation of penalty system to
enforce compliance with tax law.
The self-assessment system (SAS) was implemented in two stages:
companies in 2001 followed by businesses, partnerships and salaried
individuals in 2004.

62

Self-Assessment Scheme for


Individuals
Operational Specifications
An individual (without business income) would have to submit his return by the
30 April of a given year for income derived in the previous year. E.g. the tax
return for year of assessment 2010 must be submitted by 30 April 2011.
The due date for an individual with business income is 30th June for a given
year for income derived in the previous year. E.g. the tax return for year of
assessment 2010 must be submitted by 30th June 2010.
The return will state the individuals chargeable income and tax payable as
determined by him or her.
Additionally, upon submitting the return, the individual must account for the
balance of income tax payable after deducting the total tax deducted from his or
her remuneration under the Schedular Tax Deduction Scheme (STD) and the
total instalment payments under the instalment scheme for persons with business
income operated by section 107B to the Income Tax Act (only applies to an
individual with business income).

Returns and payments of tax


All persons must furnish a return in the prescribed
form at the specified date
Estimates of taxes must also be furnished to the
DG and installment payments made accordingly.
Defaults and non-payment should attract penalty
Taxes can also be paid by installment in the case of
employees through salary deductions
The difference in the estimated tax and the actual
tax should be settled after a specified period.
64

Records and assessments


The DGIR requires taxpayers to keep proper
records to ascertain the income tax liability
usually for seven years or more
The DGIR may raise an assessment in
certain cases where estimates are not
made, returns are not filed, or fraud and
evasion is detected
65

Appeal against an assessment


Taxpayer can appeal against an assessment
and the issues arising can be decided by an
appellate body.
The appellate body consists of (at the various
stages):
the Special Commissioners of Income Tax
The High court
The Court of Appeal
66

Records and assessments


The DGIR requires taxpayers to keep proper
records to ascertain the income tax liability
usually for seven years or more
The DGIR may raise an assessment in certain
cases where estimates are not made, returns
are not filed, or fraud and evasion is detected

The End
Tutorial next week:
Please download from
mmls
Attempt before you
come

Potrebbero piacerti anche