Masters of Financial PlanningTaxation Planning

Overview of Malaysian Taxation

By: Associate Professor Dr. GholamReza Zandi

zandi@segi.edu.my

Main Objectives of Taxation

• Taxes are used to fund government development and social

expenditure.

• Taxes are to be collected efficiently and at minimum cost to

government and to taxpayers.

• Taxes can be used as a fiscal tool to maintain the desired level of

employment and increase economic development and growth.

• Taxes are used as policy measures to encourage activities

beneficial to the country and to discourage those which are not

(for example smoking and consuming alcohol)2

Sources of Revenue Law

• Formal Sources of law

(i) Statute law or legislation

(ii) Case law (judge made laws)

• Informal source of law

Practice of the Inland Revenue Board

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Types of Taxation

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Direct taxes Indirect taxes

Income tax (Including corporate tax) Customs duties

Petroleum income tax Excise duty

Stamp duty Service tax

Real property gains tax Sales tax

Self Assessment System

• Self-assessment system (SAS) was implemented on

companies from year of assessment 2001 and on individuals

and other taxpayers from the YA 2004.

• Under the SAS, taxpayers determine their taxable income,

compute tax liability and submit tax returns.

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Self Assessment System (cont’d)

Companies under the SAS

• Provide estimate of the tax payable one month prior to the

commencement of the business

• Estimates shall not be less than 85% of its previous year’s

estimate

• May revise estimates in the sixth and ninth month of the

relevant basis period

• File tax return within seven months of the close of the

financial year end

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Tax Rates

•Resident individual taxpayers

Graduated scale of rates from 0% (on the first RM2,500) to a

maximum of 26% (for income exceeding RM100,000)

•Non-resident individual taxpayer

Flat rate of 26% with no personal reliefs

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Tax Rates (cont’d)

• Companies

Paid-up capital ≤ RM2.5 million

- 20% on the 1st RM500,000 chargeable income

- 25% on the subsequent chargeable income exceeding

RM500,000

Paid-up capital > RM2.5m

- Fixed rate of 25%

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Section 3: Charging Section

Income tax shall be charged for each year of assessment (YA)

upon the income of any person:

•accruing in or derived from Malaysia; or

•received in Malaysia from outside Malaysia.

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Classes of Income

Section 4 of the Income Tax Act 1967 (as amended) [ITA]: Tax is chargeable

under the ITA on income in respect of:

(a) Gains or Profits from a Business;

(b) Gains or Profits from an Employment;

(c) Dividends, Interest or Discounts;

(d) Rents, Royalties or Premium;

(e) Pensions, Annuities or other periodical

receipts;

(f) Gains or Profits not falling under any of

the above. 12

According to sec 5 ITA, ‘chargeable income’ of a person is

ascertained in 6 stages:

(i) Determine Basis Period

(ii) Compute Gross Income from each source

(ii) Compute Adjusted Income

(iv) Statutory Income

(v) Aggregate Income

(vi) Chargeable Income

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Determination of Chargeable Income

Hierarchy of Malaysian Courts

• Federal Court

• Court of Appeal

• High Court

• Sessions Court

• Magistrates Court

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Hierarchy of Income Tax Appeal Process

• The Director General of Inland Revenue

• Special Commissioners of Income Tax

• High Court

• Federal Court

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The End