Chapter 1

OVERVIEW OF
MALAYSIAN TAXATION
 2

Main Objectives of Taxation

• Taxes are used to fund government development and social expenditure.

• 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)

• Refer to Statistics on govt revenue vs expenditure

http://www.treasury.gov.my/pdf/economy/er/1617/chapter4.pdf

Economic Report 2016 & 17.pdf

 3

Company tax 31.5%

Direct Tax
Individual tax 13.6%
(55%)

Petroleum tax 4.8%

TAX Revenue
(82.2%) GST / SST (18.2%)

Excise duty (6%)

Govt Revenue Indirect Tax
(27.2%)
Import duty 1.4%
License &
NON-TAX Permit (5.5%)
Revenue Export duty 0.3%
(17.8%) Investment
Income (8%)
 4

Types of Taxation
Direct taxes (55%) – collected by Indirect taxes (27.2%) –
Inland Revenue Board (IRB) collected by Royal
Malaysian Customs
Department (RMCD)
Income tax (personal 13.6% & Customs duties
corporate tax 31.5%)
Petroleum income tax (4.8%) Excise duty

Stamp duty (company incorporation, Goods & Services Tax (GST)

purchase of properties, agreements) Sales &Services Tax (SST)
Real property gains tax

Withholding tax
 5

Other Taxes

There are also other forms of taxes or duties collected

by the Government, which include the following:
(a)Entertainment duty - administered by State Authority;
(b)Gaming tax - administered by the Ministry of Finance;
and
(c)Sweepstakes tax - administered by the, Ministry of
Finance
 6

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.
Companies YA 2001 Submission of tax returns within 7 months after the close
of the financial year which forms the basis period for a
year of assessment; e-filing is given extra 30 days.

Other YA 2004 Individuals without business income, submission of tax returns via
taxpayers form BE by 30 April; e-filing is given extra 15 days, i.e 15 May.
Individuals with business income, submission of tax returns via
form B by 30 June; e-filing is given extra 15 days, i.e 15 July.
 7

Self Assessment System (cont’d)

SAS for Individual
1. Under Section 107B(4A), individual taxpayers have to pay monthly income
tax on his employment income. E.g for YA 2017 (calendar year 1.1.2017 –
31.12.2017), individual taxpayers have to pay monthly instalment starting
January 2017, to avoid a big lump sum of money being paid at the end when
the return is filed which will burden the taxpayers.
2. Employers will deduct the tax according to Schedular Tax Deduction (STD)
System which is also known as Potongan Cukai Bulanan (PCB). The tax
payable is according to the salary scale. Upon submission of Form BE or B,
individual has to pay whatever balance of the income tax payable after
deducting PCB.
3. Employee can opt for Monthly Tax Deduction (MTD) scheme as a final tax
and does not need to submit annual income tax returns with effect from
YA 2014. It means that the employee is deemed to have made an election
not to file a return and the total amount of MTD deducted shall be deemed to
be the tax payable for the year of assessment.
 8

Self Assessment System (cont’d)

The conditions to opt for MTD as the final tax
paid are:
1. No other income such as business income, rental income, interest
income, royalty etc. Employee is having only employment income
assessed under s 13(1)(a), (b), (c), (d) and (e);
2. Employer makes monthly tax deduction and employee is
employed by the same employer;
3. Tax is not borne by employer. If in case the tax is borne by
employer, the employee has to add this amount in the s 13(1)(a)
and definitely higher tax needs to be payable and thus MTD is not
suitable;
4. Separate assessment with spouse. If joint assessment, personal
relief and deduction will be different and thus MTD is not suitable.
 9

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
 10

Duties of A Taxpayer
➢ Every person carrying on a business is required to maintain
proper books of accounts & receipts for 7 years (sec 82 ITA).
➢ Individuals with employment and other investment income
must maintain proper records for 7 years from the relevant
YA (sec 82A).
➢ A taxpayer needs to notify in writing to the IRB of any change
of address within 3 months of the change (sec 89).
 11

Duties of An Employer
➢ Under the Schedular Tax Deduction (PCB) system, employers
must deduct appropriate tax of its employees and remit it to
IRB by the 15th day of each calendar month in respect of tax for
the preceding month.
➢ To register the new employee via form CP22 within 1 month
of commencement of employment.
➢ To notify IRB the cessation of its employees 1 month before
such cessation via form CP22A except for those who are under
PCB or the income is below the minimum amount that is
subject to PCB. IRB will issue tax clearance letter within 30
days upon receiving form CP22A.
 12

Duties of An Employer (Cont’d)

➢ An employer who knows that its employee is leaving Malaysia for
more than 3 months must notify the IRB [sec 83 (4)]. This
notification has to be made within 1 month before departure via
form CP21. If the employee is required to leave Malaysia frequently
for job purpose, it is not required to submit CP21. Employer has to
retain the salary of the employee who is leaving Malaysia at
least 90 days after notifying IRB. This is to pay IRB on any tax due
by the employee. If the employer fails to do so, he has to
accountable for the tax liability.
➢ At the end of the year, the employer will indicate the total tax
deducted for each employee under the STD in their respective
Forms.
➢ Employers must file a Return of Remuneration by 31 March of the
following year and furnish employees with a Statement of their
remuneration.
 13

Duties of An Employee
➢ To submit form B or BE by the stipulated dates and pay the
amount of tax, if any.
➢ To notify IRB regarding changes of address within 3 months.
➢ To inform IRB within 2 months upon arrival in Malaysia that
he is chargeable to tax.
 14

Powers of The Inland Revenue Board

➢ The Inland Revenue Board (IRB) has the power to
direct taxpayers to furnish information relating to the tax
return or produce any books, accounts or information
related to the taxpayer’s assets and liabilities for
examination purposes (see sections 78, 79 and 87
ITA).
➢ The IRB has power to full and free access to all
buildings, places, books, documents and other papers
of the taxpayer for any and all purpose under the ITA.
➢ Any person failing to comply with the provisions of the
tax law without ‘reasonable excuse’ is guilty of an
offence under sec 120.
 15

Tax Rates (YA2018 & YA2019)

Individual
- Resident Graduated rate from 0% up to 28%.

- Resident 15% flat rate for knowledge worker in Iskandar

(Iskandar) Malaysia employed in qualifying activities.
- Non-resident Flat rate at 28% without deduction of any
personal reliefs.

Company
- Resident -SME paid-up capital < RM2.5m, 1st RM500k
chargeable income @17%; subsequent 24%
-big company, flat rate of 24%
- Non-resident Flat rate at 24%
 16
Income tax rates for resident individual
YA 2017 YA 2018 & 2019
Chargeable Rate Tax Payable Rate Tax Payable
Income
RM % RM % RM
On the first 5,000 0 0 0 0
On the next 5,000 1 50 1 50
On the first 10,000 50 50
On the next 10,000 1 100 1 100
On the first 20,000 150 150
On the next 15,000 5 750 3 450
On the first 35,000 900 600
On the next 15,000 10 1,500 8 1,200
On the first 50,000 2,400 1,800
On the next 20,000 16 3,200 14 2,800
On the first 70,000 5,600 4,600
On the next 30,000 21 6,300 21 6,300
On the first 100,000 11,900 10,900
On the next 150,000 24 36,000 24 36,000
On the first 250,000 47,900 46,900
On the next 150,000 24.5 36,750 24.5 36,750
On the first 400,000 84,650 83,650
On the next 200,000 25 50,000 25 50,000
On the first 600,000 134,650 133,650
On the next 400,000 26 104,000 26 104,000
On 1,000,000 238,650 237,650
Exceeding 1,000,000 28 28
 17

Chargeable Income
Income tax shall be charged for each year of assessment (YA) upon
the income of any person:
➢ accruing in or derived from Malaysia regardless whether the
payment is received from Malaysia or overseas; or
➢ received in Malaysia from outside Malaysia. With effect from
YA2004, foreign source income received by any person (other than
a resident company carrying on business of banking, insurance,
sea or air transport) will be exempted from income tax.
➢ A person carrying on a business of banking, insurance, sea and
air transport would be taxed on income wherever derived (i.e.
worldwide scope) regardless of whether the income is remitted
back to Malaysia.
 18

Summary of income & capital receipts

Income Receipt (chargeable to Capital Receipts (not chargeable
Income tax) to income tax)

(a) Provision of services (a) Personal gift

(b) Sale of goods (b) Profit from disposal of long-term

investment (properties, shares)

(c) Trading in nature (c) Speculation, windfall gains

(d) Sale of short-term investment (d) Gambling

(e) Sale of capital assets (MV, factory,

P&M)
 19

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.
 20

Determination of Chargeable Income

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
 21

Hierarchy of Malaysian Courts

• Federal Court
• Court of Appeal
• High Court
• Sessions Court
• Magistrates Court
 22

Hierarchy of Income Tax Appeal

Process
• The Director General (DG) of Inland Revenue (submit Form
Q within 30 days from the date of service of the notice of
assessment)
• DG will review within 12 months of notice of appeal. He
may apply to Minister of Finance for a further period of 6
months extension.
• Special Commissioners of Income Tax
• High Court
• Federal Court
 23

TUTORIAL
• ACCA F6 June 2017 pg 2: Table for chargeable income.
Compute tax payable for chargeable income RM35,000,
tax payable = RM900, but rebate RM400; so payable RM500
Compute tax payable for chargeable income RM40,000
• Apply tax rate for resident company & non-resident company
• ACCA F6 June 2017 Q4(b) + Q6(b)
• ACCA F6 June 2016 MCQ- Q1, Q3, Q6
• ACCA F6 Dec 2015 MCQ – Q8, Q9, Q11
• ACCA F6 June 2015 Q4(a)(i)
 24

TUTORIAL: Explain the responsibilities of Malaysian companies

for the assessment, estimation and payment of their tax liabilities
and submission of tax returns under the self-assessment system,
identify any exceptions for new companies with a paid-up share
capital of RM2.5 million and below

Self-assessment system for companies

• Under the self-assessment system in Malaysia, a taxpayer company:
• (i) has to compute and assess the taxpayer’s own tax liability: the tax payable
as per the tax return is a deemed assessment and is deemed agreed;
• (ii) has to furnish an estimate of income tax payable no later than 30 days
before the beginning of the basis period;
• (iii) is allowed to revise its tax estimate in the sixth month and/or ninth month
of the basis period;
• (iv) has to submit the company’s tax returns within seven months from the
close of the company’s accounting year;
• (v) has to settle any balance of income tax payable on or before the last day of
the seventh month following the close of the accounting year;
 25

• (vi) is subject to the penalty regime for non-compliance of due dates or

underestimation of tax;
• (vii) for companies that paid-up capital > RM2.5 million, where it commences
business in a year of assessment, is required to furnish an estimate within
three months from the date of commencement of its operations; and
• (viii) has to commence its instalment payments in the sixth month of the basis
period equal to the length of the basis period in the first year of assessment.

Exception for ‘new’ companies:

• A new company with a paid-up share capital of RM2,500,000 and below is not
required to furnish an estimate of income tax payable and not required to pay
income tax by monthly instalments for the year of assessment in which it
commences and the following year of assessment, provided that the company
is not part of a group of companies which has a company with a paid-up share
capital of more than RM2,500,000.
 26

TUTORIAL – ACCA F6 Dec 2013 Q3 (d)

Dew Sdn Bhd makes up its accounts annually to 30 April. The
company submitted the following estimates for the year of assessment
2013:
RM
Initial estimate 255,000
First revised estimate 600,000
Second revised estimate 300,000

• The company’s final tax payable per its tax computation for the year
of assessment 2013 was RM1,000,000.
• Required: Compute the penalty due by Dew Sdn Bhd for
the excessive difference between the estimated tax and its
final tax liability for the year of assessment 2013. (4 marks)