Chapter 1-Basis of Malaysian Taxation

• Introduction • Scope of Charge

• Sources of income• Rates of tax

On completion of this chapter, learners should be able to:• Understand the definition of taxation and

the objectives of implementing tax policies.• State the categories of Malaysian Taxation.• State the scope of charge for various

taxpayer• Outline the classification of income under

Section 4• Explain the various concepts of year of

assessment, basis year, basis period, financial year and accounting year

• Relate the structure of tax rates

Taxation•An economic tool used to regulate the economy.

Objectives of implementing tax policyI. Granting fiscal incentives to

encourage economic growthII. Regulating the distribution and

wealthIII. Improving the disadvantaged sector

societyIV. Regulating specific undesirable

activities

CATEGORIES OF TAX:DIRECT TAX: Income taxReal property gains taxStamp dutyPetroleum income taxOffshore business activity in Labuan

INDIRECT TAX:Sales taxCustom dutiesService taxExcise duty

Section 3 ITA 1967:“ Subject to and in accordance with

this Act, a tax to be known as 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.”

Section 3B ITA 1967:“ Income tax shall not be charged

on income in respect of an offshore business activity on by an offshore company.”

Para 28 of Schedule 6, ITA 1967: w.e.f from 2004, foreign income

which is remitted into Malaysia is exempted in the hand of:

a)Resident companies except companies which are carrying on business of banking, insurance, shipping and air transportation.

b)Resident individual, trust body, co-operative society & Hindu Joint Family

YEAR OF ASSESSMENT (YA) w.e.f 1 Jan 2000, Malaysia implemented the

current year assessment. Example 1:

Prior to 1 Jan 2000 – preceding year basis: imposition of income tax would be a year later than the derivation of income.Eg: Income earned 1997, assessed to tax YA 1998

Income earned or received in the relevant

period

Chargeable to income tax of the relevant YA

1.1.2006 to 31.12.2006 YA 2006

1.1.2007 to 31.12.2007 YA 2007

BASIS YEAR The year in which income is derived or

received. Corporate body might adopt calendar

year or accounting year in the case of business for the basis year.

Example 2: Financial Year BasisHappy Sdn. Bhd. closes its accounts on 30 June each year. For YA 2007, the basis period of the company accounting period from 1 July 2006 to 30 June 2007.

Example 3: (Calendar Year Basis)Amina worked as a lawyer in a law firm in KL from 1 Jan 2008 to 31 Dec 2008. Her total income received for the year 2008 amounted to RM60,000. The income received during this period is taxable in YA 2008.

CHARGEABLE PERSONSCompanyBody of personsCorporation sole

ITA 1967 had categorise the income under Section 4 and section 4A.

Section 4

Classes of Income

(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 payments not falling under any of the foregoing paragraphs

(f) Gains or profits not falling under any of the foregoing paragraphs.

SECTION 4A

SPECIAL CLASSES OF A NON-RESIDENT WHICH IS DERIVED FROM MALAYSIA

(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 plants, machinery or other apparatus purchased from such person

(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 made under any agreement or arrangement for the use of any moveable property

END OF CHAPTER 1