CHAPTER 1 INTRODUCTION TO MALAYSIAN TAXATION

DPA40133 MALAYSIAN TAXATION 1

CHAPTER 1
INTRODUCTION TO MALAYSIAN TAXATION

COURSE LEARNING OUTCOMES

• Generalize briefly how the tax system, tax
legislation and administration operates in
Malaysia and recognize the sources of
income and exemption from income tax based
on Income Tax Act 1967.

What Is Tax

• Payment / contribution charged by
Government as a return for using the
country’s income, wealth and other
resources.



What is Income Tax

Tax charged on income

A sum of money taken from a person
income to be used by government in
order to provide public facilities in this
country

History of Malaysian Taxation

In Peninsular Malaysia: Introduced in Malaya by
Income Tax Ordinance 1947, effective from 1/1/1948

In Sabah – Income Tax Ordinance 1956, effective
1957

In Sarawak – Inland Revenue Ordinance 1960,
effective 1961

Income Tax Act 1967 – enforced from 1/1/1968

Malaysian Tax System Self
Assessment
Formal/ System
Traditional
System

Formal/ Traditional System

Form is Return form Form J send
issued to received by to tax payer
tax payer at
beginning of IRB outlining
the income
year & amount
assessment
of tax
Report Assessment payable
Income for computed
preceding Tax payer
calendar by IRB required to
pay tax as
year or per Form J
accounting

year

Self Assessment System

Tax Payers are required to:

Determine Compute Tax Submit tax
taxable Payable return / e-
income
filling

Self Assessment System

• Begin in Year 2004 (for individuals)

• Based on concept ‘Pay, Self-Assess and File’

• Tax payers are entrusted with responsibilities to assess and pay
taxes due to the Government

• IRB will carry out audits on a selective basis to verify the
information provided by taxpayers

Group Year of implementation

Companies 2001
Sole-proprietors, partnership, co-operatives and salaried individuals 2004

Objective of Taxation

To raise government fund

To develop nation’s growth

To supervise income and wealth
distribution among different groups

Direct Tax

Income Tax

Stamp duty Govern by Property
Inland Gains Tax

Revenue
Board (IRB)

Petroleum
Income Tax

Indirect Tax

Export duty GST Excise duty

Govern by
Royal

Custom and
Excise

Department

Import duty

Scope of Charge

• Income received by Malaysian resident individual from Malaysia
and outside Malaysia (remitted) will be taxed

• However, starting YA 2004, income earned and remitted to
Malaysia from outside Malaysia by Malaysian resident is exempted
from income tax

• A non-resident individual will only be chargeable to tax on income
derived from Malaysia

• Income derived by offshore company from offshore business
activity is not chargeable to income tax



Principles of Malaysian Taxation

Residence Status • Resident individual will be taxed on income arising and earned in Malaysia and
income received in Malaysia from outside Malaysia

• A non resident individual will only taxed on income arising or earned in Malaysia

Entity • There are different assessment between individual and company

Year of Assessment • Tax is assessed based on income derived in respect of year of assessment

Deduction • Relief are deductions against the taxable income

Income Derived • Income is assessable and chargeable to income tax by reference to the source of
income accrued or derived

Exercise

1. What Is Tax?
2. Give two types of Malaysian tax system.
3. What are the responsibilities of tax payer under Self Assessment

System.
4. Give 3 objectives of taxation.
5. Explain 2 types of tax.

Activity

• Perform group with consist 4 – 5 person.
• Select group leader.
• Discuss the topic selected.
• Draw mind mapping according to the topic.
• Present the mind mapping to the class.

Discussion Topic

1. Important of tax to the country
2. Effect of not paying tax for the country
3. Easy ways how the government can increase tax collection
4. Type of income that are subject to tax
5. Current tax issues in Malaysia