ZAKAT & TAX PLANNING

ISLAMIC FINANCIAL PLANNING

FIRDAUS AHMAD
SITI NASUHA MOHBIN

ISLAMIC FINANCIAL PLANNING

FIRDAUS AHMAD
SITI NASUHA MOHBIN

ISLAMIC FINANCIAL PLANNING

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without the prior permission of publisher.



Perpustakaan Negara Malaysia
Mode of Access: Internet


eISBN: 978-967-2860-19-8


Publisher:

Politeknik Sultan Idris Shah
Sg. Lang, 45100 Sungai Air Tawar

Selangor Darul Ehsan
Tel. No.: 03-32806200
Fax No.: 03-32806400
https://psis.mypolycc.edu.my





Writers:
Firdaus Ahmad | Siti Nasuha Mohbin

PREFACE

Islamic financial planning consists of series of activities to
reflect the comprehensive nature of the planning of
individuals’ state of financial affairs based on Shariah
compliant. One of components for Islamic financial planning
includes zakat and taxation planning.
This book primarily aimed for students who are taken Islamic
banking and finance course to enhance knowledge regarding
Islamic Financial Planning related to zakat and tax planning.
The topics can help the readers to understand the concept of
zakat and taxation planning in Malaysia more details as the
most fundamentals information included in this book.
This book elaborates about the zakat and taxation
management in Malaysia, which are included the types of
zakat, zakat recipient and authority bodies who is responsible
to manage the taxation payments. There are some examples
for the calculation regarding zakat and tax planning included
in this book.
The authors hope this book can be a good reference for the
readers to enhance their understanding regarding the zakat
and taxation planning.

SYNOPSIS

Financial planning consists of series of activities to
reflect the comprehensive nature of the planning of
individuals’ state of financial affairs. Components of
Islamic financial planning includes zakat and taxation
planning. Zakat and tax planning is known as wealth
purification process under Islamic wealth management.

Zakat is one of the pillars in Islam where it is a
mandatory 2.5% take on the wealth of well-to-do
Muslims as already mentioned in Quran and Sunnah.
Meanwhile, taxation is considered as a contribution
levied on the persons, property or business for the
support of the government. In Malaysia, the law
governing income taxation is the Income Tax Act 1967.

Both zakat and taxation play an important role
especially towards the development of socioeconomic

in Malaysia.

DEFINITION TABLE OF

ZAKAT CONTENT

Conditions 01
Rate
Sadaqah

09 zakat on

ZAKAT RECIPIENT TYPES WEALTH

ASNAF OF ZAKAT Business Income
Rental Income
04 ROLE 10
16 Personal Income
TAXATION Savings
Inland Revenue Board of Malaysia
in Malaysia Gold & Silver
Shares
17
Livestock
Crops

INFOGRAPHIC

Sources & Recipient Of Zakat

20

27 Audit

TAX & ZAKAT

TAXPLANNING

31 investigation

42

ISSUES

Zakat & Tax Planning

Definition of zakat

Zakat or Zakah or alms giving is one of the 5 pillars in Islam. Zakat is the 4th pillar
of Islam, which comes immediately after as-siyam and before hajj (pilgrimage).
By performing zakat, it brings a direct impact not only to the relationship
between human and Allah SWT but also the relationshhip among themselves. It
can be describe as a parameter of the obedience of the human to Allah SWT
and also can be used to shared the wealth from the rich to the poor (Qardhawi,
1999). Zakat also can be understand as the act of giving of a small percentage
of one’s possessions (surplus wealth) to charity; generally to the poor and
needy. There are some who underpay zakat because of not assessing their zakat
correctly and there are others who do not pay zakat despite maintaining a lavish
life-style. So, It is the duty of an Islamic community not just to collect zakat but
to distribute it fairly as well. In Islam, zakat is not a simple charity out of our own
sweet will. It has its own mathematics, just like faraid (Islamic estate distribution
law). Therefore, Muslims need to adhere to the zakat law, and not pay the zakat
amount arbitrarily.

Allah says :`And steadfast in prayer and give zakat; and whatever good Ye send forth for
your souls before you, ye shall find it with Allah: for Allah sees well all that ye do'.

(Al-Baqarah:110)

Literally, zakat can be understand as cleanliness, purify or sanctify, Info
growth, blessing, betterment, sadaqah, and praise. In simple definition,
zakat means grow (in goodness) or 'increase', 'purifying' or 'making Zakat means
pure'. So the act of giving zakat means purifying one's wealth to gain grow, Increase,
Allah's blessing to make it grow in goodness. From terminology of
shariah (fiqh) / legal definition, zakat can be described as the obligation purifying or
making pure

1

of individual to contribute / pay a certain proportion of specific wealth
to be given to the specific recipient which already stated in Al-Quran.
Payment was made annually under Islamic law on certain kinds of
property, provided meet certain conditions and criteria. One of the
most important principles of Islam is that all things belong to God, and
that wealth is therefore held by human beings in trust. Our possessions
are purified by setting aside a proportion for those in need, and, like the
pruning of plants, this cutting back balances and encourages new
growth.

ISLAM FREE NOT
(MUSLIM) BEING A SLAVE

NISAB - STAND CONDITIONS COMPLETE
AS TRESHOLD / OWNERSHIP
(MILKUT
MINIMUN THAM)

COMPLETION GROWTH (AL-
OF ONE YEAR - NAMA’)

HAWL

2

The cardinal rate to remember when in computing your zakat 2.5%
is that it is based on a flat rate of 2.5 % as opposed to the
conventional income tax rate that varies according to the
amount taxable. This is the rate for all zakatable wealth that is
valued on gold and silver such as zakat on income, statutory
savings, shares, business etc. However, this rate is not
applicable to some types of zakat. Zakat assessment also
differs from income tax, with the former based on assets while
the latter on income. In zakat jurisprudence, `assets' do not
only cover fixed and liquid assets, but also the inflow of
income.

Sadaqah

It means worshipping Allah by giving money (and deeds) without that being
made obligatory in Shariah. The word sadaqah is sometimes used to refer to
obligatory zakat.

Sadaqah ul jariah

Sadaqah ul Jariah means ongoing charity. An example is a person who digs
(or causes to be dug) a well from which people can draw water, free, with
the intention of doing it for the sake of Allah. This is an act of charity which
continues over time, and as long as people benefit from the well, the donor,
dead or alive, will continue to receive credit for having done it.

3

Any Similarities?

Item Zakat Sadaqah

Nature Religious duty. Compulsory by Not Compulsory in shariah.
Payment shariah Permissible
Requirements Attain certain amount of No certain requirement of
Amount wealth(nisab) over a lunar year payment
Recipients (hawl) Varies depend on individual
Changeability In general, 2.5% of wealth No direct recipients
Collection subject to Zakat No specific rates of sadaqah
Payment Period Give to anyone
Specified recipients categories
Rates of zakat cannot be
changed. It was fixed in the Holy
Quran
Paid to legal authorities (amil)

Once a year (hawl) Applicable all the time

4

Zakat Recipient (Asnaf)

Islam establish the zakat as a compulsory charity tool that can be used
on eight types of group of people. It has been stated in the Quran (At
Taubah, 60). From eight types of them, five are meant for poverty
eradication such as the poor, the needy, the debtors, the slaves
(release them from captivity), and the wayfarer. Others are the heads
of zakat administration, those whose heart are made inclined (to
Islam), and in the way of Allah.

Although, these eight types of people have been mentioned in Quran,
but the first priority in the use of zakat funds has to be accorded to
the alleviation of poverty through assistance to the poor and the
needy.

FAQIR 1 ZAKAT RECIPIENT IBNU SABIL

8

MASAKIN 2 7 FISABILILLAH

AMIL 3 6 GHARIMIN
5 RIQAB
MUALLAF 4
5

Categories of Zakat Beneficiaries

The Poor and the needy

Al-Quran and the muslim scholars already agreed that
the poor or known as faqir are the most important
groups that must be given priority in the distribution of
zakat. According to Hanbali, Maliki and Syafi’i scholars,
Fakir can be understand as the hardcore poor who has
no property or income at all.

Hanbali, syafi’i and maliki Islamic school of thought defined the needy as those
who have wealth and income but their wealth and income are not sufficient
enough for their life and their dependent. It means they do not have enough to
cover their basic needs.

Zakat collectors

The zakat collectors (Amil) include employers charged with the
collection, distribution and administration of zakat. Amil are
those who are assigned to perform all activities with regard to
zakat matters such as collecting, bookkeeping, making lists of
people eligible for Zakat, and a financial calendar. These people
will receive Zakat as compensation for their work, even if they
are wealthy. This does not include a person who works as an
agent for one or two wealthy people to take Zakat for himself.

They should donate their time for Zakat disbursement and do it with honesty and
truthfulness. If they can not, they should be paid or rewarded for their time. In a
hadith related by Abu Musa Al-Ashi`ari (RA), Prophet Muhammad PBUH said: "A
trustworthy Muslim executor is the one who executes completely what has been
entrusted to him of Zakat money in good faith." (Bukhari)

6

People whose hearts are to be Reconcile

Muallaf are those whose hearts we want to
harmonize into the fold of Islam, either because
their faith is weak or we are afraid of their being
harmed, should be given Zakat to strengthen their
Iman or until we no longer fear their harm. They
deserve to receive zakat in order to strengthen their
heart in increasing their belief (iman) or stopping
their bad intention or helping muslims from the
enemy. In relation to this, six identified groups can
be categorized as muallaf:
§ Those who are expected to embrace Islam as their religion, or those who
can influence their society or family to Islam.
§ Those who havebad intent on Islam. the purpose of zakat is to prevent
their bad intention.
§ Those who have just embranced Islam as their religion. It is expected that
the giving of zakat can strengthen their iman
§ The non muslim leaders or society figures. It is expected that they can
attract their followers to accept islam.
§ The muslim leaders or muslim society figures whose iman in islam is
weak. It is expected giving zakat can encourage them to strengthen their
iman and jihad in Islam.
§ Muslim who live in the non-Muslim regions in order to make sure they
can survive in those regions.

7

Slaves

There are two ways to free slaves. Firstly, is to help mukatab.
Mukatab are slaves who have agreements with the master
to be released once they can present a certain amount of
fortune. The second way is to buy slaves and then free them
from their own zakat or from the collected zakat by a
government. Riqab also can be understand as a person who
has contracted with his master to buy himself out of
bondage deserve Zakat and should be given enough to pay
off their debt to the master and be freed themselves;
similarly, Muslim prisoners of war if their freedom is tied to
monetary payment, deserve Zakat sufficient enough to
secure their release.
Although there is no slavery practice formally in this current situation, we can
still find a lot of “slavery” practices, which are not only conducted by a group or
nation but also by individuals. In Selangor, the riqab is defined as those who have
misguided faith, prostitutes, and those who are deviated from true Islamic
teaching.

8

Debtors (to help those heavily indebted with paying their debts)

(A) The guarantor, who takes the responsibility of
someone else's debt so as to reconcile the two warring
parties, to extinguish the fire of fitnah between them.
If the person requests Zakat money to pay off this debt
he should be given it, which will encourage him to
continue in this noble cause.
(B) Whoever incurs debt and has no money to pay it back will be given from
Zakat to help pay his debt, whether the amount is large or small; or his creditor
should be paid directly on his behalf, so long as it is paid off.

In the way of Allah/Deeds accomplished in the cause of Allah

By this is meant to finance a Jihad effort in the path of Allah,
not for Jihad for other reasons. The fighter (mujahid) will
be given as salary what will be enough for him. If he needs
to buy arms or some other supplies related to the war
effort, Zakat money should be used provided the effort is
to raise the banner of Islam. zakat for this category can be
used for the public benefit (maslahah) with regard to the
establishment of muslims’ Aqidah.

9

The wayfarer/Travellers – Ibnu Sabil

This is the traveler who in a strange land runs out of
money. He or she deserves Zakat, enough money to take
him back to his country, even if he is wealthy and can
find someone to loan him the money. On his part, he
should take with him on his trip sufficient money, if he
is wealthy, so that he will not need Zakat.
Zakat money can not be used to pay off other obligations, such as giving Zakat
money to people you are obligated to take care of by law; or Zakat money can
not be used to pay for hotel and food expenses.

Socio Economic Aspects of Zakat – Distribution Justice

Knowing who qualifies as recipient of Zakat is an important aspect of Zakat
collection in Islam. Fortunately, Allah (SWT) has been merciful to us in that
He Himself spelled out the people eligible to receive Zakat.

In Surah Taubah He stated: "Alms are for the poor and the needy; and those
employed to administer (the funds); for those whose hearts have been
(recently) reconciled (to truth); for those in bondage and in debt; in the cause
of Allah; and for the wayfarer: (thus is it) ordained by Allah, and Allah is full
of knowledge and wisdom." (Al-Qur'an, 9: 60).

10

Types of zakat

Zakat Fitr

zakat fitr is a one off payment is made once in every Muslim Hijri calender year at any time
between the first day of the month of ramadhan and the first day of shawal. All muslims are
obliged to pay this, regardless of their age, status or wealth. The amount of zakat payable is
approximately 3kg of staple food in the relevant country or an amount of money that is
equivalent to the price of the food.

Zakat Al -Mal (Zakat on Wealth)

Zakat al mal is an annual payment based on the amount of wealth ownerd by a
muslim individuals or organizations. This payment is obligatory upon any muslim
individuals or organization that has completed the requirement of nisab
(minimun taxable amount) and Haul (one Muslim Hijri calender year). The
payment is 2.5% out of the total wealth deemed for zakat. Zakat al-mal can be
subdivided into zakat on:

Business Rental Personal Savings
income Income Income

Zakat on Wealth

Gold & Shares Livestock Crops
Silver

11

Zakat on business income

Hadith from Rasulullah s.a.w are narrated by Abu Daud:
“…indeed, Rasulullah S.A.W. asked us to pay zakat from the prpperty

that we prepare to sell”
Therefore all kind of business owned by muslims are subjected to zakat
CALCULATION
Growth method

Capital (+) Long Term Liabilities (-) Fixed Assets (-) investment
The results is multiply by 2.5 percent.

Working capital method
Current assets – current liabilities.
The results multiply by 2.5 percent

12

The CONDITIONS that must be fulfilled to be subjected to business

zakat:

1 Muslim

The nisab is 2.5% or 6 2 A free person
equivalent to 85

grams value of gold

CONDITIONS

Meet haul and the 5 3 The wealth must be
nisab at the end of from halal sources

haul 4
7
Those activities prohibited
against Islam cannot be
included in zakat calculation

Exist the intention to be
in business

The business sources 12 8 The business property
including donation is not withdrawn for
are subjet to zakat personal use

CONDITIONS

Must have Full 11 9 Must be from
ownership productive property

10 E.g cash, shares, bond,

ending inventory, fixed assets

(movable or immoveable), 13
net trade receivable

Zakat on Employment Income / Personal Income

Based on Gross Income

1.5Percent from the total net employment income

Based on Net Income

Deduction Allowed
For personal expenses RM 8000

For wife RM3000 per person
For children RM1000 per person
Gift / Allowances to parents (actual amount)
KWSP – 11 percent per annum
Contribution to organisation that pay zakat - i.e Tabung Haji, Takaful

Zakat on Savings

It is calculated based on the lowest balance in the saving accounts. In case of
more than one saving account, the total amount of the lowest balance need to
be accounted. Zakat is payable only if the balance is more than RM 6200. Saving
account in Tabung Haji is excluded since it already paid by institution.

Zakat from saving deposit
Cash deposit in bank is zakatable. The nisab for cash money is based on the nisab
for gold. i.e 20 Mithqal (85 grams gold) or silver (595 grams). The minimun
amount payable is baseb on amount stated by zakat institution of each state.
Below are the rate for the zakat from saving deposit:

14

Islamic Calender (354 Days) = 2.5 %
Normal Calender (365 Days = 2.577 %
Changes according to price of 21K gold in the market

Zakat on Shares

Zakat on share are imposed to all Listed companies (from Syariah
Councils) and non listed companies (from syariah councils). It can be
devided into 2 situation which is:
i) listed companies (from syariah councils)

Shares owned AT THE END of haul period
2.5% of the lowest market price of the share

Shares traded DURING the haul period
2.5% on the net profit (capital gain)

ii) Non-listed companies (from syariah councils)

• Difficulties to determine the market value.
• Zakat is calculated based on the dividend received
• The shares that invested in the company is usually paid in cash
• Zakat rate is 2.5% for the lowest value of shares. The shares

must be held by the shareholders for one year and exclude any
loan for purchasing the shares (if any).

15

CALCULATION
Example 1: shares owned at the end of one full year. Zakat rate is 2.5% on
the lowest cost and the market value

200,000 units of shares in (halal stocks listed in syariah index) X
RM1.00 (the lowest price) = RM200,000.
The zakat is: RM200,000 X 2.5% = RM5,000.

Example 2: shares purchases within a year. The zakat is calculated based
on 2.5% on the value of shares after deducting the cost of purchasing new
shares

The value of shares ( - ) the cost of purchasing new shares
RM500,000 – RM400,000 = RM100,000
The zakat is: RM100,000 X 2.5% = RM2,500.

16

Zakat on Gold and Silver

The gold and silver are zakatable if they fulfill the nisab rate and one
year owership (haul).

Unused Gold

Satisfied haul and nisab of 85 grams
It is based on current gold value
The rate is 2.5%

Used By The Owner

NOT SUBJECT TO ZAKAT if the gold/silver below the nisab or uruf.

Nisab depend on state. For example the state of selangor , the nisab
based on uruf is 800 grams.

17

Zakat on Agriculture

Zakat on agriculture is imposed to owner of the staple foods of the
particular countries which fulfill the nisab and haul. Zakatable grains are
paddy, dates, corn, wheat etc. the nisab is 5 ausuk or equivalent to 363
gantang / 1000 kg in Malaysia. The haul is equivalent to one full year
ownership. The grains or fruits must be planted by the farmers. The
farmers need to pay the 5% zakat rate on agriculture after grains have
been harvested.
CALCULATION

Edible crops ( processed rice, ripe fruits, etc)
For rice, 10% without irrigation and 5% with irrigation.
May be paid at the times of harvest if satisfy haul and nisab

The nisab is 1000 kg
Other crops based on RM6200 for the nisab (-) Business income

18

Zakat on livestocks

The livestocks are zakatable when the owners have fulfilled the conditions
for nisab and haul. Zakatable livestocks are sheeps, cows, buffaloes and
camels. These livestocks must be healthy, not criple and must not be used
to work in the paddy field or carry the goods. Zakat on livestocks is depend
on the type animal:

Nisab Zakat Rate
30 cows A calf
40 cows A cow
60 cows
70 cows Two calves
40 – 79 goats A cow and a calf
80 – 119 goats
A goat
Two goals

• For every 30 buffaloes, the zakat rate is 1 male buffalo, aged 1 year
or more

• For every 40 buffaloes, the zakat rate is 1 female buffalo, aged 2
years or more

• If there are mixed female and male, the owner can choose any
buffalo or cow to be paid as zakat.

19

Zakat Exemption

Certain conditions that assets can be exempted from zakat are:
§ Non productive fixed asset
§ Non current asset
§ Asset which are not fully owned by the owner
§ Current operating liability
§ Fund for charity
§ Net receivables after zakat deduction
§ Any receivables from HARAM sources

20

Info
Sources & Re

Zakat on Zakat on
Gold wealth

Zakat on
Savings

IN

Zakat on
Shares

Zakat on
Crops

ographic
ecipient of Zakat

Zakat on Muallaf Masakin
KWSP

Zakat on
Income

Zakat on Fisabillah
Business

NSZTAITKUATTIONS

Amil Fakir

Ibnu Riqab Gharimin
Sabil

21collection

Distribution

Tax Administration in Malaysia

Taxation from Islamic Perspective

In Islamic law, the basic obligation to pay taxes (dharibah) is verse 29 surat At-
Tauba which means:

"Fight those who believe not in Allah nor the Last Day, and they do not forbid
what is forbidden by Allah and His Messenger and not the religion that is true
(the religion of Allah), namely those that are given to them al the Book, until
they pay 'Jizya' with obedient, they are in a state of subjection. "

(QS. At-Taubah: 29)

Based on above paragraph is only impose the jizya (protection tax) against
non-Muslims in both men and women can receive protection in Muslim
countries. Meanwhile, people who cannot afford autonomous from the burden.
The assignment was modified to the social status and their financial condition.

There are two opinions of scholars about taxes. Some scholars

have that forbid taxes, but scholarly justify the tax.

Jumhur Ahl sunnah wal Jama'ah They agreed that the tax collected
scholars of the four schools, / deducted by the government to
Shafi'i, Hanafi, Maliki and fund and meet the needs of the
Hanbali, argues muks usyur or community such as the financing
cannot be generalized as availability of facilities, roads,
customs tax moreover. bridges, public transport, drinking
Etymologically, it means a water, electricity, hospitals,
reduction muks with persecution. government,generic
So muks are all levies (money) pharmaceuticals, defense, security
taken by ma'kis (muks collector and public order by military and
or collectors levy) from traders Police, the country's schools to the
through ways unjust. rural and remote areas.

22

Overview of Taxation in Malaysia

Taxation defined as a compulsory Taxation has become a compulsory
payment to a government based on factor for governments to survived.
the holdings of a tax base and Taxation was considered as a
become an important source of contribution levied on the persons,
revenue for the government. property or business for the support
of the government
The collection of tax
revenue is essential
for the government
to ensure its funding.

Taxation administration was managed by the In Malaysia, due to the dual
Inland Revenue Board of Malaysia (IRBM) as financial system, for Muslim
the main revenue collecting agencies of the compulsory to pay their tax dues
Ministry of Finance. and zakat if eligible. The tax payers
obligated to pay tax liability for a
particular year of assessment and
some rebate for the zakat payment
would be given to those who made
the payment.

23

IRBM was established in accordance to The Department of Inland Revenue
the Inland Revenue Board of Malaysia Act Malaysia became a board on

1995 in order to ensure IBRM had March 1, 1996, and is now formally
authority to act as agent on behalf of known as IRBM
Government and to provide services in
administering, assessing, collecting and
enforcing payment of income tax and

others tax.

The agency is responsible for the overall administration of direct taxes under
the following Acts:

1967 Petroleum (income 1976 Promotion of 1949 Labuan Business
tax) Act Investments Act Activity Tax Act

Income Tax Act 1967 Real Property Gains 1986 Stamp Act 1990
Tax Act

24

The Role of the Inland Revenue Board of Malaysia (IRBM)

To administer the direct tax To administer the other direct
collection that includes tax such as real property
income tax namely personal gains taxes (RPGT), and
taxes, corporate taxes, stamp duties also includes of
petroleum taxes, the direct tax collection
withholding tax,
cooperatives tax and others Play an important role in
nation building as the
Handling tax revenue collected is
administration including channel back into the
audit, assessment, development of the
collection and enforcement country especially in
of payment of income tax, areas of infrastructure,
petroleum revenue tax, the establishment of
property gains tax, stamp public hospitals and
duty and any other related schools and provision of
taxes as may be agreed welfare to the poor and
between the government needy.
and the board.

25

Since IRBM was corporatized on March 1st, 1996, and in line with its new
status as a statutory board, various changes have been made to ensure that
IRBM meets its vision as: -

‘A Leading Tax Administrator that Contributes to
Nation Building’

IRBM HAS INTRODUCE: -

Self- Assessment Self- Assessment
System (SAS) for System (SAS) for
the individuals
corporates in
in the year the year 2004
2006.

26

TEST YOURSELF

State whether the statement is true or false

Taxation become one of source of expenses for government
1. In Malaysia, Muslim only compulsory to pay zakat only.
2. Inland Revenue Board of Malaysia (IRBM) is considered as official

organisation on behalf of government to manage taxation in Malaysia.
3. Inland Revenue Board of Malaysia (IRBM) responsible to managed for

individual income tax only.
4. The purpose of Self- Assessment System (SAS) established to encouraged

taxpayers voluntarily comply with the law and regulations

27

Citizen as a Tax Payers

In Malaysia, all the individuals are accountable to pay tax on income
accumulated in derived from or remitted to this country if the total amount
exceeded the minimum requirement decided by the government.

Sources of income can be taxed includes gains or profits from
trade, salaries remunerations, gains or profits from employment,

dividends, rents, royalties and other income

Who is Taxpayers????

Taxable income o Person lives in Malaysia more
than 182 days
referred to the total
income that you had to o meet the requirement of
pay for tax after deducted income that can be taxed
all the tax relief and zakat
rebate for Muslim, who o Individual who earns an
already pay the zakat in annual employment income of
the same year. above RM34,000 (after EPF
deduction) has to register a
tax file.

28

Self-Assessment System

In Malaysia, Self-Assessment System (SAS) was introduced and fully
implemented in 2004 to replace the official assessment system.

SELF-ASSESSMENT SYSTEM

1 Taxpayer is responsible
for computing one’s own
chargeable income, tax
payable and making
payments

2 Responsibility for properly
assessing a person’s tax liability is
transferred from Inland Revenue
Board Malaysia (IRBM) to the
taxpayer.

29

The prescribed form B/BE/M for that particular Year Assessment (YA) will
be issued to individual taxpayers in January the following year or earlier and will
be due for submission not later than 30 April except for those who derive
business income where the deadline for tax filling is 30 June each year. The
submission of the form is deemed to be notice of assessment for which tax is
due and payable on the same date as the filing deadline.

Self-Assessment System concept: -

PAY
SELF-ASSESS

FILE

The taxpayers must make a right computation concerning the tax
payment in order to prevent from any arises issue in the future. For example,
the are certain taxpayers tend to avoid from paying tax for some reasons. Under
SAS, tax audit will be executing as one of primary activity of the IRBM and it aim
to enhance the voluntary compliance with tax laws and regulation by the
taxpayers. IRBM will be monitors taxpayers’ compliance with laws through field
audits.

30

31

Tax Audit and Tax Investigation

TAX AUDIT is an examination of a Taxpayer’s

business records and financial affairs to ascertain
the exact amount should be declared and the right
tax due should be reported and paid are in
accordance with Tax laws and regulations.

OBJECTIVE OF TAX AUDIT

To encourage voluntary compliance with the
tax laws and regulation
To ensure the higher tax compliance rate is
achieved under a new assessment for
taxation, namely as Self-Assessment System
(SAS).

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TYPES OF
TAX AUDIT

DESK FIELD
AUDIT AUDIT

DESK AUDITS

- Concerned with

straightforward issues or

tax adjustments which

are easily dealt with via

correspondence.

- Desk audit involves

checking all the

information on income

and expenses as well as FIELD AUDIT

various types of claims - This audit takes place at a

made by a taxpayer in his taxpayer’s premise.

income tax return - This field involves the

examination of the

taxpayer’s business

records.

- The taxpayers would be

given a prior notice

before field audit was

held as the documents

like personal bank

statements would be

required.

types of claims made 3b3y a

taxpayer in his income tax

TAX INVESTIGATIONS is an examination of Taxpayer’s

business and/or individual books, records & documents. This
examination is to ensure that the correct amount of Income has been
reported and Tax there on paid in accordance with the Tax laws and
provisions.

Furthermore, Criminal Investigation Divison (CID) has been
established by the IRBM with purpose of proving any offense
committed, to ascertain the person responsible for offence and to
pursue criminal prosecution in accordance with the provision of the
ITA.

Typically, this framework aims to assist investigation officers to
accomplish their duties efficiently and effectively and at the same time
assist taxpayers in fulfilling their obligations. The investigation will be
implemented in cases where it is suspected, based on precise and
definite evidence that show the taxpayer consciously trying to be
evaded paying tax.

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OBJECTIVES OF THE TAX INVESTIGATION

Act as a hindrance against tax evasion

Ensure the right amount of tax is collected
from taxpayers
Verify the person liable for the offence, to
pursue criminal prosecution
Reinforce autonomous compliance with
tax laws and regulations.

TEST YOURSELF

1. Who is the individual can be considered as taxpayers in
Malaysia?

2. What the requirement for those eligible become
taxpayers?

3. What happens if the taxpayers put the wrong
information in SAS by purpose?

4. What is tax audit?
5. What is tax investigation?
6. Differentiate between Tax audit and Tax investigation.

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BASIC OF ZAKAT AND TAX PLANNING
DEFINITION OF TAX PLANNING

TAX PLANNING is considered as one of crucial subject in financial

planning. Tax planning is about managing to achieve legitimate tax savings. Tax
savings may arise from a timing advantage or permanent advantages. A timing
advantages involves the postponement of a tax liability to a subsequent year,
with savings resulting from having the use of money now that would otherwise
have been paid in tax. Some benefits arise would lead to deductions tax due at
the end of year assessment for the taxpayers. Taxpayers can refer to tax
schedule rate to calculate tax due and used tax relief table to get some
reduction.

Tax planning facilitates the smooth TAX PLANNING
functioning of the financial planning process. TAX EVASION
Objective of tax planning is to make sure there is
tax efficiency and to ensure that all elements of a TAX AVOIDANCE
financial plan can function together with
maximum tax-efficiency.

Tax planning is a significant component of a financial plan. Reducing tax
liability and increasing the ability to make contributions towards retirement
plans are critical for success.

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Tax evasion and tax Tax evasion which
avoidance are
considered as involves outside the law
offence under where the liability to
pay tax, having been
Income Tax Act 1967 incurred is wilfully
(ITA) hidden or ignored

Tax avoidance involves Any offence occur
arrangement within would expose to
severe penalties by
the law which appears IRBM
to take taxpayers

outside the scope of
specific legislation

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TAX RATE SCDEHULE
TAX SCHEDULE is a rate sheet used by individual or corporate taxpayers

to determine their estimated taxes due. The schedule provides tax rates for
given ranges of taxable income, as well as for particular taxable circumstances.
The tax schedule is also called the rate schedule or tax rate schedule. Based on
the tax schedule, the taxpayers able to identify their tax due and able to properly
managed the payments.

In Malaysia, the table of tax rate schedule can be referring to IRBM
website. Below shown the example table of tax rate schedule for the years 2020.
Taxpayer can refer to IRBM website for updated information regarding tax rate
schedule.

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ASSESSMENT YEAR 2020

0 - 5,000 CALCULATIONS (RM) RATE % TAX (RM)
5,001 - 20,000 0
20,001 - 35,000 On the First 5,000 1 0
35,001 - 50,000 3
50,001 - 70,000 On the First 5,000 8 0
70,001 - 100,000 Next 15,000 14 150
100,001 - 250,000 21
250,001 - 400,000 On the First 20,000 24 150
400,001 - 600,000 Next 15,000 450
600,001 - 1,000,000 24.5
1,000,001 - 2,000,000 On the First 35,000 25 600
Exceeding 2,000,000 Next 15,000 26 1,200
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On the First 50,000 30 1,800
Next 20,000 2,800

On the First 70,000 4,600
Next 30,000 6,300

On the First 100,000 10,900
Next 150,000 36,000

On the First 250,000 46,900
Next 150,000 36,750

On the First 400,000 83,650
Next 200,000 50,000

On the First 600,000 133,650
Next 400,000 104,000

On the First 1,000,000 237,650
Next 1,000,000 280,000

On the First 2,000,000 517,650
Next ringgit ..........

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TAX RELIEF

TAX RELIEF is any government program or policy inventiveness planned to

reduce the amount of taxes paid by individuals or businesses. It may be a

universal tax cut or a targeted program that benefits a specific group of

taxpayers or bolsters a goal of the government. There

are several tax relief benefits can be enjoyed by Tax relief table
individual particularly like personal relief, wife referred to IRBM
relief for those who married, disabled person, website and this
child relief and so on. table would be
updated every
year occasionally

Under Section 6A (3) Income Tax Act 1967- YA 1978, a

Zakat rebate shall be granted for a year of assessment for
payment is any zakat, Fitrah or any other religious dues payment
one of tax of which is obligatory and which are paid in the basis
year for that year of assessment to, and evidenced by
rebate

a receipt issued by, an appropriate religious authority

established under any written law. The higher payment for zakat can reduce the

amount of tax due

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TAX RELIEF FOR RESIDENT INDIVIDUAL
YEAR OF ASSESSMENT 2020

NO. INDIVIDUAL RELIEF TYPES AMOUNT
(RM)
1 Individual and dependent relatives
2 Medical treatment, special needs and carer expenses for parents 9,000
5,000
(Medical condition certified by medical practitioner) (Restricted)
OR
Parent OR
Restricted to 1,500 for only one mother 3000
Restricted to 1,500 for only one father (Restricted)
3 Basic supporting equipment for disabled self, spouse, child or 6,000
parent (Restricted)
4 Disabled individual 6,000
5 Education fees (Self) 7,000
(Restricted)
i. Other than a degree at masters or doctorate level - Course
of study in law, accounting, islamic financing, technical, 6,000
vocational, industrial, scientific or technology (Restricted)

ii. Degree at masters or doctorate level - Any course of study
6 Medical expenses for serious diseases for self, spouse or child

7 Medical expenses for fertility treatment for self or spouse

8 Complete medical examination for self, spouse, child (Restricted to

500)

9 Lifestyle – Expenses for the use / benefit of self, spouse or child in 2,500

respect of: (Restricted)

i. purchase of books / journals / magazines / printed
newspapers / other similar publications (Not banned
reading materials)

ii. purchase of personal computer, smartphone or tablet (Not
for business use)

iii. purchase of sports equipment for sports activity defined
under the Sports Development Act 1997 and payment of
gym membership

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iv. payment of monthly bill for internet subscription (Under

own name)

10 Lifestyle – Purchase of personal computer, smartphone or tablet 2,500

for self, spouse or child and not for business use (Restricted)

(Additional deduction for purchase made within the period of 1st

June 2020 to 31st December 2020)

11 Purchase of breastfeeding equipment for own use for a child aged 1,000

2 years and below (Deduction allowed once in every 2 years of (Restricted)

assessment)

12 Child care fees to a registered child care centre / kindergarten for a 3,000

child aged 6 years and below (Restricted)

13 Net deposit in Skim Simpanan Pendidikan Nasional (Total deposit 8,000

in 2020 MINUS total withdrawal in 2020) (Restricted)

14 Husband / wife / payment of alimony to former wife 4,000

(Restricted)

15 Disabled husband / wife 3,500

16 Each unmarried child and under the age of 18 years old 2,000

17 Each unmarried child of 18 years and above who is receiving full- 2,000

time education ("A-Level", certificate, matriculation or preparatory

courses).

18 Each unmarried child of 18 years and above that:

i. receiving further education in Malaysia in respect of an 8,000

award of diploma or higher (excluding matriculation/

preparatory courses).

ii. receiving further education outside Malaysia in respect of

an award of degree or its equivalent (including Master or

Doctorate).

iii. the instruction and educational establishment shall be

approved by the relevant government authority.

19 Disabled child 6,000

Additional exemption of RM8,000 disable child age 18 years old 8,000
and above, not married and pursuing diplomas or above
qualification in Malaysia @ bachelor degree or above outside 7,000
Malaysia in program and in Higher Education Institute that is (Restricted)
accredited by related Government authorities
20 Life insurance and EPF INCLUDING not through salary deduction

i. Pensionable public servant category
• Life insurance premium

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ii. OTHER than pensionable public servant category 3,000
• Life insurance premium (Restricted to RM3,000) (Restricted)
• Contribution to EPF / approved scheme (Restricted
to RM4,000) 3,000
(Restricted)
21 Deferred Annuity and Private Retirement Scheme (PRS) - with
effect from year assessment 2012 until year assessment 2021 250
(Restricted)
22 Education and medical insurance (INCLUDING not through salary
deduction) 1,000
(Restricted)
23 Contribution to the Social Security Organization (SOCSO)

24 Payment for accommodation at premises registered with the
Commissioner of Tourism and entrance fee to a tourist attraction
(Accommodation expenses at premises registered with the
Ministry of Tourism, Arts and Culture Malaysia and entrance fees
to tourists’ attractions incurred on or after 1st March 2020)

CALCULATION OF TAX AND ZAKAT FOR INDIVIDUAL

Appropriately to calculate the tax due, there several step must be organized so
as the amount of tax due require to be paid by the individual can be known. The
first step is the taxpayers must to identify the annual income and any financial
commitment bear by the individual. Then, taxpayers need to recognize any
related tax relief based on tax relief table for year assessment and find out if any
zakat payment remunerated. The last step is the taxpayers can calculate the tax
due after deducting the tax relief and zakat payment. When the taxpayers
already figure out the tax due, the payment can be proceeding to the IRBM.

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