AN INTRODUCTION

TO MALAYSIAN
TAX SYSTEM

Origin Of Accounting
Under

feudal system:
paying the landowner in kind
through goods and labor
e.g.: energy
Under taxation system:
payments to the tax authorities
in monetary rather than
payment in kind.
2

Definition of Taxation

Payment/contribution charged by the Government

as a return for using the countrys income, wealth
and other resources

contribution levied on persons, property or

business for the support of Government (Concise
Oxford Dictionary)

income tax is a tax charged for each year of

assessment upon the income of any person accruing
in or derived from Msia or received in Msia from
outside Msia ( S.3.ITA 1967)
3

History of taxation in
Malaysia

1st introduced in Malaya in 1.1.1948 by

BritishIncome
Tax
Ordinance
(ITO)1947

ITO 1947 is then replaced by Income

Tax Act 1967 enforced from 1.1.1968

ITA 1967 is the law governing income

taxation
4

Sources Of Malaysian
Taxation Law

There are 3 sources of revenue law in the Malaysian

context :
1. Statute law (referred to as the legislation
2. Case Law (judge made laws)
3. Practice of the Malaysian Inland Revenue
Board (IRB)

Implementation of Tax Laws :

IRB is responsible for all policies relating to direct
taxes and administer which are Income Tax,
Petroleum Income Tax, Real Property Gains Tax
and Stamp Duty
5

No one like to
pay voluntarily

RM
contribution - no service is
rendered in return of payment
Law is imposed
Income Tax Act
1967

A compulsory monetary contribution

demanded by the Govt. for its support
and levied on income , property,
goods purchased etc.

No government machinery
can continue to function
without financial resources

Not only on income but sale

& purchase of properties,
goods & services

Objectives of Taxation
Raising revenue to finance governments
expenditure

Ensuring that taxes are collected effectively and at

minimal cost (both government and taxpayers)

Regulate the private sector to maintain desired level

of employment and increase the economic
development/ growth
7

Objectives of Taxation
Regulate the distribution of income and
wealth between different types and
classes of citizen

Ensuring fairness and equity,

i.e the burden of tax is spread fairly and
equitably among taxpayers
8

Types of Tax
DIRECT TAX

INDIRECT
TAX

Income Tax
Petroleum Income Tax
Real Property Gains Tax (RPGT)
Stamp duty

Goods and Services tax (GST)

Custom Duty (Import and export
duty) e.g. electronic product
imported.
Excise duty e.g. product
manufactured in Malaysia such as
liquor, cigarettes.
9

Types of Tax
1. Direct Taxes:
The

responsibility to administer direct

taxes in Malaysia lies with the Inland
Revenue Board (IRB).

2. Indirect Taxes
The

responsibility to administer indirect

taxes in Malaysia lies with the Royal
Custom Department.

10

Basis of Taxation
Total income tax is charged on total income

received by a person in that basis year.

Total expenditure tax is charged on the

expenses incurred by a person

Wealth tax is charged on total capital

increment or wealth of a person in a basis

year.
Transactions tax is charged every time a

transaction incurred.
11

What is Income Tax?

Tax charged on income

A sum of money taken from a person

income to be used by the Government in
order to provide public facilities in this
country

12

Scope of Income Tax Charge

Section 3 of the Income Tax Act 1967
provides:

Subject to and in accordance with this

Act, a tax to be 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
13

Scope of Income Tax Charge

Sec. 3 sets out two circumstances where

income tax liability arises:
a) the transaction must be income in
nature and such income is accrued in or
derived from Malaysia; or
b) the transaction must be income in
nature and it is received in Malaysia from
outside Malaysia (foreign source income).
14

Income
gains

Income

Benefit enjoyed
Profit

Revenue in nature
Increase in value of
capital, not an income

Capital in nature
Return on capital employed/
transportation involving
circulation of capital
15

Taxable Persons
Section

2 defines person to include a

company, a body of persons and a
corporation sole.
Company means any body corporate &
including any body of persons
established with a separate legal
identity under any law outside Malaysia.

16

Taxable Persons
Body of person unincorporated body of
persons (not being a company), including a
Hindu joint family but including Limited
Liability Partnership (LLP)**,excluding a
conventional partnership.
e.g: trust, club, trade association,
cooperative etc

For conventional partnership, individual

partner will be assessed to tax, not the
partnership itself.
17

Taxable Persons
It

is crucial to establish the concept

of person because:
To

determine the chargeable person

on the income derive from taxable
activities

To

determine the tax rate applicable

to each category of chargeable
persons
18

Accruing In Or Derived From

Income accrued in or derived from Malaysia

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

Accrued means right to receive whereas

derived has been defined according to the
sources of income as follows:
19

Section

Sources of Income

Derivation Section

4(a)

Business

12

4(b)

Employment general
- public services

4(c)

Dividends
Interest
Discounts

14(1) (3)
15
-

4(d)

Rents
Royalties
Premiums

15
-

4(e)

Pensions
Annuities / other periodical payments

4(f)

Others

15B

4A

Special classes of income

15A

13(2)
13(3)

17(1) (3)
-

20

Received And Remitted

Received means come into possession.

Income not physically received in Malaysia

would not be liable to Malaysian income
tax.

Eg: receipt of a cheque in Malaysia would

not constitute received unless it is
credited into a bank account in Malaysia.

Remitted = receipt

21

CHARGEABLE INCOME Sec 5 of ITA 1967

Gross Income
Adjusted Income
Statutory Income

Aggregate Income
Total Income
Chargeable
Income
22

Scope of taxation

Income tax in Malaysia is imposed on income

accruing in or derived from Malaysia except for
income of a resident company carrying on a business
of air/sea transport, banking or insurance, which is
assessable on a world income scope.

Income attributable to a Labuan business activity of

Labuan entities includingthe branch or subsidiary of
a Malaysian bank in Labuan is subject to taxunder
the Labuan Business Activity Tax Act 1990 instead of
the Income Tax Act 1967.

A Labuan entity can make an irrevocable election to

be taxed under the Income Tax Act 1967 in respect
of its Labuan business activity.
23

Basis of assessment

Income is assessed on a current year basis.

The YA is the year coinciding with the calendar year,

for example, the YA 2016 is the year ending 31
December 2016.

The basis period for a company, co-operative or trust

body is normally the financial year ending in that
particular YA.

For example the basis period for the YA 2016 for a

company which closes its accounts on 30 June 2016
is the financial year ending 30 June 2016.

All income of persons other than a company, cooperative or trust body, are assessed on a calendar
year basis.
24

Scope Of Charges Categories

3 categories:1. The territorial/derived

basis/scope
2. The world income scope
3. Derived/remittance basis

25

1. The territorial/derived basis/scope

All income arising within particular territory /

country would be taxable

eg: Japan income arises from outside Japan is not

subject to tax. Income arising from overseas brought
to Japan are not taxable (free of tax)

Resident / non resident irrelevant

Important aspect is to establish that income

arises/derived from the particular location /
country

26

2. The world income scope

income wherever arises is taxable
question of remitting income is irrelevant
emphasis on tax payer based on
citizenship, residence, or domicile (place
one lives/home) of a taxpayer.
Domicile

where you reside.

Normal meaning the place where one person usually stay.

differ from resident status.

Eg:

seek medical treatment overseas and then die

=> still domicile in Malaysia

27

The world income scopecont

eg: if individual is a citizen of country A,
all income (irrespective of where it is
derived from) is taxable in country A. For
company refer to resident status of
company.
if taxpayer not citizen, resident/domiciled,
then the territorial basis would be applied.
it is very wide; requires more resources of
manpower for tax authorities to verify
taxpayers have actually reported their
worldwide income.

28

3. Derived/remittance basis

improvement over the derived/territorial basis,

but not as wide as the world income scope.
income arising from one country world:

a) be taxable as in (i) derived basis and;

b) income brought into the country from overseas would also be

chargeable to tax

this basis of taxation - applied to residents /

citizens:

resident income taxable under a & b.

If non resident = territorial/derived basis.

Applied in Malaysia and Singapore. Avoid double

taxations relief given
29

Scope Of Charge To Income Tax

Applicable In Malaysia
Derived & remittance basis

World income Territorial basis

basis

Resident chargeable on
i)
Income accrued /
derived from Msia
ii)
Income received in
Msia from overseas

Resident
Non-resident
chargeable on chargeable on
income
income derive
wherever
from Malaysia
arising

30

Classes of Income on which tax is

chargeable

Section 4 Subject to this Act, the income upon

which tax is chargeable under this Act is income
in respect of:4(a) Gains/profit from a business;
4(b) gains/profit from employment;
4(c) dividend, interest/discount;
4(d) rent, royalties/premium;
4(e) pensions, annuities or other periodical
payments not falling under any of the
foregoing paragraphs;
4(f) gains/profits not falling under any of the
foregoing paragraphs.
31

Special Classes of Income on

which tax is chargeable
S4A ITA 1967
Income of a person not resident in Malaysia
for a year of assessment:

(i)Amounts paid in consideration of services rendered by

the person 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, such person;

32

Special Classes of Income on which tax is

chargeable.
(ii)

Amounts paid in consideration of technical

advice, assistance or services rendered in
connection with technical management or
administration of any scientific, industrial or
commercial undertaking, venture, project or
scheme;

(iii)

(iii) Rent or other payments not being

payments of film rentals made under any
agreement or arrangement for the use of any
movable property,

Which is derived from Malaysia

33

Year of Assessment
Year of assessment means a
calendar year,
e.g.: Y/A 2016 running from
1/1/2016 31/12/2016

34

Basis year

The basis year for year of assessment is

the calendar year coinciding with that
year of assessment.

This means the basis year is always the

12 months to 31 Dec.

Eg: the basis year for the YA 2016 is the

calendar year from 1.1.2016-31.12.2016

35

Basis period

In the case of a person (other than a

company, trust body or cooperative
society), the basis year for a YA shall
constitute the basis period for that YA

In the case of a company, trust body

or cooperative society, the calendar
year for a YA shall constitute the basis
period for that YA

36

Basis period

Eg: XYZ Sdn Bhd closes its account on 30

June each year. The accounting period
1.7.2015-30.6.2016 shall form the basis
period for the YA 2016.

Eg. ABC Sdn Bhd closes its account on 31.12

each year. The accounting period 1.1.201631.12.2016 shall form the basis period for
the YA 2016

37

PRECEDING YEAR OF ASSESSMENT

Period prior to 1 January 2000
The imposition of income tax is a year later than
the derivation of income.
Eg: Karen Sdn Bhd closes its account to 30
September every year. The profit that they earned
for year ended 30 September 1997 is RM 1 million.
Basis year = 1 October 1996
30 September 1997
Year of assessment = YA 1998
Therefore income tax would be payable in 1998

38

CURRENT YEAR OF ASSESSMENT

With effect from 1 January 2000, preceding

year basis will be replaced with current year of
assessment (CYA).
Due to this income that was earned in 1999
would be waived and income that was earned in
2000 would be assessed on a current year basis
for year of assessment 2000.
CYB- assessment on income received in current
year. Eg. Income received in 2009 will be taxed
in 2009 as well.
Advantage of CYB- tax collection is based on the
tax payers ability to pay and his cash flow
39

Current year of assessment

Eg: Basis period

i)

1 July 1998 30 June 1999

ii)

1 July 1999 30 June 2000

iii)

1 July 2000 30 June 2001

Solution
i)

Year of assessment YA 2000 (PYA)

Income tax payable = Waive from tax

ii)

Year of assessment YA 2000 (CYA)

Income tax payable in year 2000

ii)

Year of assessment YA 2001 (CYA)

40

Effect of CYB-2000
In 2000, there are 2 assessment year CYB
& PYB
Income received in basis year 1999 are tax
waived except for dividend
Income received in basis year 2000 are
taxed in year of assessment ( YA) 2000
Business losses in year 1999 are allowed to
bring forward to year after
Official Assessment System (OAS) has been
changed to Self Assessment System (SAS)

41

Official Assessment System (OAS) vs.

Self Assessment System (SAS)

Self Assessment System (SAS)

SAS is a method whereby the taxpayers are given
the responsibility to calculate their own tax
liability and pay the amount of tax liable as
calculated by them.
Therefore the burden of assessing the tax liability
has shifted to the taxpayer.
SAS is implemented in stages start with
companies in 2001, followed by business,
partnership and co-operative in 2003, and
individual income in 2004.

42

Official Assessment System (OAS)

Under the OAS the taxpayers have to
report their income to LHDN by filling the
Borang Nyata Pendapatan and then the
LHDN will access their income tax and post
the assessment notice to the taxpayer to
show the tax amount that they have to pay
to LHDN.
The taxpayer has the responsibility to
report and to pay the tax as assessed by
the tax authority only.
43

Tax Rate

S6 ITA: Resident Individual

progressive
YA2002-

rate

YA2008: 0%-28%

YA

2009: 0% - 27%

YA

2010-YA2012: 0%- 26%

YA

2013-YA2014: 0%- 26%

YA

2015: 0% -25%

YA 2016: 0% - 28%
44

TAX RATE FOR RESIDENT

INDIVIDUAL
YA 2015 & YA 2016

45

Chargeable Income
(RM)
On the First 5,000
Next 15,000
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 150,000
On the First 250,000
Next 150,000
On the First 400,000
Next 200,000
On the First 600,000
Next 400,000
On the First 1,000,000
Above 1,000,000

YA 2015
Rate %
Tax(RM)
1

0
150

150
750

10

900
1,500

16

2,400
3,200

21

5,600
6,300

24

11,900
36,000

24.5

47,900
36,750

25

84,650
50,000

25

134,650
100,000

YA 2016
Rate %
Tax(RM)
1

0
150

150
750

10

900
1,500

16

2,400
3,200

21

5,600
6,300

24

11,900
36,000

24.5

47,900
36,750

25

84,650
50,000

26

134,650
104,000

234,650
25

238,650
28

Tax Rate
Non-Resident individual
YA 2016

47

Types Of Income

Rate (%)

Business, trade or profession

Employment

28

Public Entertainer
Interest

15

Royalty
Payments for services in connection with the use of property
or installation, operation of any plant or machinery
purchased from a non-resident
Payments for technical advice, assistance or services
rendered in connection with technical management or
administration of any scientific, industrial or commercial
undertaking, venture, project or scheme
Rent or other payments for the use of any movable property
48

10

49