LECTURER: MUNUSAMY

MARIMUTHU
ROOM NO: 0.70
TEL: 9283985
E-MAIL: munusamy@uum.edu.my

TOPIC 1
AN INTRODUCTION
TO MALAYSIAN TAX
SYSTEM

TOPIC COVERED:

1.1 Definitions of Taxation

1.2 Principles & Objectives of Taxation
1.3 Types of Tax and Tax Rates
1.4 Basis of Charge
1.5 Classes of Taxable Income
1.6 Taxable Person
1.7 Concept of Basis Period/Year/Year of
Assessment/Previous and Current Year
1.8 Self Assessment System (SAS)
1.9 Highlight Proposed Changes (Latest
Budget)

Basis

OBJECTIVES OF STUDY:
To introduce the principles & objectives of
taxation in Malaysia.
To identify the scope of charge (Sec. 3) &
classes of income on which tax is
chargeable.
To distinguish / understand between
official assessment system & selfassessment system on Malaysia tax system.
To introduce types of tax in Malaysia
(direct & indirect tax).

What is tax?
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 yr 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)

History of taxation in
Msia
1st introduced in Malaya in 1.1.1948 by
British- Income Tax Ordinance (ITO)1947
ITO 1947 is then replaced by Income Tax
Act (ITA)1967 - enforced from 1.1.1968
ITA 1967 is the law governing income
taxation

Scope of Charge
Section 3 of the Act 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

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.

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.

Objectives of Taxation
To raise government fund
Efficient tax collection at minimum
cost
To develop nations growth
To promote fair and equitable justice
To supervise income and wealth
distribution among different groups
To curb bad activities
To supervise private sectors activities

Direct and Indirect Taxes

Direct Tax-govern by LHDN
Income tax
Stamp duty
Property Gains Tax.
Indirect Tax-govern by Royal Custom of
Malaysia
Sales tax
GOODS & SERVICES TAX
(GST)
Service tax
Import and export duty
Excise duty

Tax Rate
S6 ITA:
Resident Individual = progressive rate

(YA 2010-2013: 0%-26%)

Non-Resident individual = flat rate
(YA 2010-2013: 26%)
Company (2009-2013; fixed rate of 25%)
paid up capital less RM2.5M first
RM500K 20%,
thereafter 25%

Basis of Income Tax

Starting fromAssessment
1.1.2000, Malaysia has moved

towards Current Year Basis (CYB).

Previously Preceding Year Basis (PYB).
PYB- assessment on income received previous
year.
Eg. Income received in 1998 will be taxed in
1999
CYB- assessment on income received in current
year.
Eg. Income received in 2001 will be taxed in
2001
Advantage of CYB- tax collection is based on
the tax payers ability to pay and his cash flow.

Effect of CYB-2000
In 2000, there are 2 assessment year
CYB & PYB.
Income received in BY 1999 - tax waived
(except for dividend).
Income received in BY 2000 - taxed in 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)

Classes of Income on which

is chargeable
(S4
ITA
S4tax
(a) gains
or profits from
a business;
S4 (b) gains or1967)
profits from an
employment;

employment;
S4 (c) dividends, interest or discounts;
S4 (d) rents, royalties or premiums;
S4 (e) pensions, annuities or other
periodical
payments not falling
under any of the foregoing paragraphs;
S4 (f) gains or profits not falling under
any of the
above paragraph.

Special Classes of Income

on which tax is chargeable

S4A ITA 1967

Income of a person not resident on Malaysia
for a year of assessment:
(i) Amounts paid inconsideration 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;

Continue.
(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)Rent or other payments not being payment
of film
rentals made under any agreement
or arrangement for the use of any movable
property,
Which is derived from Malaysia.

Whom are Taxable?

S2 ITA 1967 defines PERSON to include
a company, a body of persons and a
corporation sole.
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

Year of Assessment (YA),

Basis Year (BY) and Basis
S20- BY is year when
income is(BP)
derived.
Period

S21- BP is a period when income is derived.

YA- year when income is assessed.
YA can comprised of one calendar year or one accounting
period.
Calendar year is the period of 12 months beginning from 1
Jan. - 31 Dec.
Accounting period is the period used by businesses to
prepare the financial statements (eg. 1.7.00-30.6.01 or
1.1.98-31.12.98)

Examples
Calendar year 2001- BY? BP? YA?
(under CYB & PYB).
ABC Co. closed its accounts on
30.9.2001. BY? BP? YA? (under
CYB & PYB).
Note: basis period = financial year

Official Assessment System

(OAS) vs. Self Assessment
System
Self Assessment
System(SAS)
(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 cooperative in 2003, and
individual income in 2004.

Continue
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.

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RESIDENCE STATUS