DPD30073 Islamic Financial Planning

TAX ADMINISTRATION IN MALAYSIA

lembaga hasil dalam negeri (lhdn)
The Inland Revenue Board of Malaysia (IRBM) is one of the main revenue collecting agencies of the
Ministry of Finance. IRBM was established in accordance with the Inland Revenue Board of Malaysia
Act 1995 to give it more autonomy especially in financial and personnel management as well as to
improve the quality and effectiveness of tax administration. The Department of Inland Revenue
Malaysia became a board on March 1, 1996, and is now formally known as IRBM. The agency is
responsible for the overall administration of direct taxes under the following Acts:

a) Income Tax Act 1967

b) Petroleum (Income Tax) Act 1967
c) Real Property Gains Tax Act 1976
d) Promotion of Investments Act 1986
e) Stamp Act 1949
f) Labuan Business Activity Tax Act 1990.

Overview of Income Tax Law

Income tax is imposed on a territorial basis. Individuals, whether resident or non-resident in Malaysia,
are taxed on income accruing in or derived from Malaysia. Foreign income remitted into Malaysia is
exempted from tax. All income tax information is summarized based on the Malaysian Income Tax Act,
1967 (the Act).

The Responsibilities of a Citizen and E-Filing

All individuals are liable to pay tax on income accrued in, derived from or remitted to Malaysia. Taxable
income is arrived after adjusting for expenses incurred wholly and exclusively in the production of the
income. The rate of tax depends on the resident status of the country which stipulated under Section 7
in the Income Tax Act 1967. A resident individual or citizen is taxed on his chargeable income at
graduated rated from 1% to 30% after the deduction of tax reliefs.

However, an individual with chargeable income less than RM5,000 is not taxed. The chargeable
income of an individual resident is arrived by deducting from his or her total income the personal
relief.

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e-Filing application is a system which allows taxpayer to fill and send the Income Tax Return Form
(ITRF) and estimation form online. It is recommended for taxpayers to use e-filing as it is easy, fast
and secure. ITRF and estimation form provided in e-filing ezHASiL

Income tax rate

Real Property Gain Tax (RPGT) cukai keuntungan harta tanah (CKHT)
Real Property Gains Tax (RPGT) is a tax levied by the Inland Revenue Board (IRB) on chargeable
gains derived from the disposal of real property. This tax is provided for in the Real Property Gains Tax
Act 1976 (Act 169). The tax is levied on the gains made from the difference between the disposal price
and acquisition price. The disposal price is the amount of money, or the value of consideration in
monetary terms obtained from the disposal of any asset, less:

 The cost or expenditure incurred in upgrading or increasing the value of the asset;
 The cost or expenditure incurred at any time after the acquisition of the asset by the purchaser
to determine, maintain or defend his right over the asset; and
 The cost incurred by the vendor in selling the asset.

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The Basics of Income and Allowances

The income of an employee from an employment includes wages, salary, remuneration, leave pay, fee,
commission, bonus, gratuity, perquisite, or allowance (whether such items are paid in money or
otherwise) in respect of having or exercising the employment.

The scope is very wide and includes virtually all forms of remuneration. All types of allowances, for
example housing allowances, traveling allowances, entertainment allowances, are to be included as
gross income provided it can be shown that such allowances etc., arise out of having or exercising the
employment.

ZAKAT AND TAX PLANNING

The differences between zakat and tax

Differences Zakat Tax

Objective Purification of wealth Law obligation

Concept Religious payment by Muslim Process of raising money by government

Legislation Al quran, Sunnah, ijtihad Statute Law, Common Law, IRD/LHDN

Guidelines

Collection Islamic Religion Council/PPZ IRD/LHDN

Distribution 8 Asnaf For government, expenditure and

development.