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CHAPTER 1:

INTRODUCTION TO MALAYSIAN TAXATION

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LEARNING OBJECTIVE

Explain the definition of taxation

Understand history and background of taxation

Sources of Malaysian Taxation Law

Identify types of taxes

Tax Avoidance and Tax Evasion

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DEFINITION OF TAXATION Oxford dictionary:

Contribution levied on persons, property, or business for the support of govt.

Law cases:A compulsory exaction of money by a public authority for public

purposes enforceable by law (Matthews v The Chicory Marketing Board, 1938).

Raising money for the purposes of govt by means of contributions from individual persons (R v Barger, 1908)

IRB Tax guide Is an amount of money which is taken from your earnings to help

towards some of the cost of services we received in this country

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BACKGROUND OF TAXATION

Income Tax Ordinance 1947 with effect from 1 January 1948

Replaced by Income Tax Act 1967 with effect from 1 January 1968

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SOURCES OF MALAYSIAN TAXATION LAW

There are 3 sources of revenue law in the Malaysian context and they are:Statute law (referred to as the legislationCase Law (judge made laws)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.

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CHARACTERISTICS OF TAXATIONCompulsory payment Raised for government purposes The exactions do not constitute payment for

services rendered The payments are not penalties The exactions are not arbitrary Enforced under any written law The exactions should not be incontestable No specific right is transferred

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PURPOSE OF TAXATION

RevenueEnsuring stable growth in revenue to finance the annual

budget

Growth Providing incentives within the tax system to promote

growth, especially in the private sector

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TYPES OF TAXES IN MALAYSIA

Direct taxes Paid directly by those on whom it is levied.Example of direct tax : Income Tax, RPGT, Stamp Duty and

Petroleum Income Tax. Indirect taxes

Collected via third party.Example of indirect tax : Sales Tax, Service Tax and GST.

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CHARACTERISTIC OF INCOME

RegularityIncome distinguished from savingIncome must be receivedCustomary receipts are income Illegality is of no relevance to assess abilitySpeculation is not incomeReward for servicesGift is not an income

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CLASS OF INCOME

Section 4 of ITA 1967Sec 4(a): gain or profit from a businessSec 4(b): gain or profit from employmentSec 4(c): dividends, interest or discountsSec 4(d): rents, royalties or premiumSec 4(e): Pension, annuities or other periodical paymentsSec 4(f): gain or profits

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CHARGEABLE INCOME

Gross Income

Adjusted Income

Statutory Income

Aggregate Income

Total Income

• Sec 5 of ITA 1967

Chargeable Income

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TAX RATES

Resident individual tax rates (pg 17-18)

Tax Rebates (pg 19)

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TAX AVOIDANCE AND TAX EVASION

Tax avoidance are supported by commercial substance, motivated by commercial viability and most importantly are within the jurisdiction of the Act.

Tax evasion on the other hand involves the employment of artificial or fictitious transactions such as inflating the expenses claimed, putting in phantom employees for salary deductions, under reporting cash sales with the sole intention to pay less tax.

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THANK YOU

Q & A