TST/MDAC2073/NOV2017 1

MDAC 2073 TAXATION I

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Basis of
Malaysian
Taxation

Residence
Partnership
Status

Taxation
Tax
Personal Tax Legislation &
Administration

Employment
Income
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Basis of Malaysian Taxation

IRBM

Scope of
Tax Rate
Charge

Charging Sources
Section of Income
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IRBM Profile
• Main revenue collecting agencies of the Ministry of
Finance.
• The agency is responsible for the overall administration
of direct taxes under the following Acts :
• Income Tax Act 1967,
• Petroleum (Income Tax) Act 1967,
• Real Property Gains Tax Act 1976,
• Promotion of Investments Act 1986,
• Stamp Act 1949,
• Labuan Offshore Business Activity Tax Act 1990.
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Direct taxes vs indirect taxes

Customer/ Royal
Business Malaysian
Taxpayer
Enterprise Customs

Indirect Example:
Example: Taxes Custom duties
Direct
Income
Taxes
tax

IRBM
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Direct taxes Indirect taxes

Direct taxes are paid directly
to the tax authority i.e IRBM.
Indirect taxes are paid by the
customers to business
enterprises which act as the
collecting agents for the
government.

Examples: Examples:
Income Tax Good & Services Tax
Petroleum Income Tax Custom Duties
Real Property Gain Tax Excise Duties
Stamp Duties
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Scope of Charge
• Section 3 of Income Tax Act 1967 provides
that 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.
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Year of Assessment (YA)

Refers to the year in which tax is assessed.

With effect from 1 January 2000, Malaysia

implemented the current year assessment.

The assessment of income tax will be concurrent

with the derivation of the income.

Eg: Income earned from 1.1.2017 - 31.12.2017 is

chargeable to income tax for YA 2017.
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Income

It has the
characteristics of:
No specific • repetitive,
definition under ITA • flow from sources of
1967. income, and
• received in the ordinary
course of business.
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Income (examples)
• Provision of services
• Sale of goods
• Trading or adventure in the nature of trade
• Sale of short-term investment
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Persons

Company

A body of persons
(Trust, club, co-operative societies)

Corporation sole
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Accruing in or derived from

Determine the taxability of each

source of income.

Income will subject to Malaysian

tax if the source of income is in
Malaysia or the source of income
is located in Malaysia.
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Accruing in or derived from

Income accrued in or derived from

Malaysia will be taxed at the time of
accrual or derived notwithstanding
the fact that the income may not
have been received in Malaysia.

Foreign source income received will

be exempted from income tax with
effect from YA 2004.
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Section 4 : Types of Income

4(a) Gains or profits from a business

4(b) Gains or profits from an employment

4(c) Dividends, interest or discounts

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Section 4 : Types of Income

4(d) Rents, royalties or premium

4(e) Pensions, annuities or other periodical payments

Gains or profits not falling under any of the foregoing

4(f) paragraphs
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Rates of tax

Flat rate
Scaled rate
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Flat rate Scaled rate

Applicable to specific categories of Applicable to resident individuals,

taxpayers such as non-resident club, trade associations and
individuals, companies and trust cooperative society where income is
bodies. taxed at progressive rates.

Non-resident individuals Resident individuals (YA 2016):

(YA 2016):28% Club and trade associations (YA
2016)::
0%-28%
Company (YA 2016): Cooperative society (YA 2016)::
Paid up capital > RM2.5 mil shares: 0%-28% scaled rate but different
24% from individual’s scaled rate.
Paid up capital is ≤ RM2.5 mil shares
at the beginning YA:
CI≤RM500,000: 19%
CI> RM500,000: 24%
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Assessment Year 2016

Chargeable Income Calculations (RM) Rate % Tax(RM)

0 - 2500 On the First 2,500 0 0

2,501 - 5,000 On the First 2,500 0 0

5,001 - 10,000 On the First 5,000 0

Next 5,000 1 50

10,001 - 20,000 On the First 10,000 50

Next 10,000 1 100

20,001 - 35,000 On the First 20,000 150

Next 15,000 5 750

35,001 - 50,000 On the First 35,000 900

Next 15,000 10 1,500

50,001 - 70,000 On the First 50,000 2,400

Next 20,000 16 3,200

70,001 - 100,000 On the First 70,000 5,600

Next 30,000 21 6,300
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Assessment Year 2016

Chargeable Income Calculations (RM) Rate % Tax(RM)

100,001 - 150,000 100,000 11,900

Next 50,000 24 12,000

150,001 - 250,000 On the First 150,000 23,900

100,000 24 24,000

250,001 - 400,000 On the First 250,000 47,900

Next 150,000 24.5 36,750

400,001 - 600,000 On the First 400,000 84,650

Next 200,000 25 50,000

600,001 - 1,000,000 On the First 600,000 134,650

Next 400,000 26 104,000

Exceeding 1,000,000 On the First 1,000,000 238,650

Next RM 28 ..........
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Tax Administration of
Self Assessment System (SAS)
• Two stages of implementation of SAS:

2001 • Companies

2004 • Individuals
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Tax Administration of
Self Assessment System (SAS)
• The purpose of SAS is to modernise and upgrade the tax
administrative system in the country.
• It creates an efficient tax system, speeds up the collection
of tax and improves the rate of tax compliance.
• Income tax assessments are made on current year basis.
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Self Assessment System?

A total process change

from the previous
formal assessment
system.
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Self Assessment System

The Revenue Authorities

will be given wider powers
to conduct field audits to
ascertain the correctness
of the tax returns submitted
and penalties can be
expected to be imposed
where income is under
declared or understated.
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Self Assessment System

Pay

Self Assess

File
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Self Assessment System

• Monthly salary deductions

Pay • Installments

• Compute own tax

Self
Assess • Tax knowledge

• The ITRF submitted to IRBM

File • Deemed notice of assessment
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The SAS will affect taxpayers

in the following ways:

The costs of tax compliance will increase in

view of the more detailed work required in
preparing the tax returns and computations
to meet the requirements of the tax law.

Taxpayers will have to ensure that the tax

returns are completed fully and as
accurately as possible.
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The SAS will affect taxpayers

in the following ways:

There will be more emphasis on record

examination. Records must be maintained to
support the transactions undertaken and be
available for Revenue’s tax audit.

Paying tax based on current year’s income

will require a good accounting system that
can generate regular monthly statements to
enable the taxpayers to make their
estimated tax payments accurately.
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The SAS will affect taxpayers in the

following ways:

Related party transactions must be

properly documented or supported by
agreements.

Accounting system must be reviewed

to ensure that the new requirement of
record keeping in compliance with the
tax law are in place.