BASIS OF MALAYSIAN INCOME TAX

BY: NORHIDAYAH ISMAIL

LEARNING OBJECTIVES

At the end of this topic, students are able to

explain:

 Definition, objectives and contribution of taxes to the economy

 Sources of revenue law
 Types of taxes
 Classes of income
 Charging sections and scope of charge
DEFINITION OF TAXATION
The system of compulsory contributions levied by a government or
other qualified body on people, corporations and property in order
to fund public expenditures.
Raising of money from individuals and organizations by the state in
order to pay for the goods and services its provides.
OBJECTIVES OF TAXATION
To raise revenues for public needs so that persons can live in a
civilized society
An instrument of fiscal policy influences the direction and structure of
money supply, investments, credits, production, interest rate, inflation,
prices and in general, of the national economy
 SOURCES OF REVENUE LAW
 A tax law is a body of rules passed by the legislature by which the government
acquires a claim on tax payers to convey, transfer and pay to the public authority
- Statute law
- Case law
- IRB
 TYPES OF TAXES

Direct :deduction from income

:e.g income tax, RPGT,
stamp duty, petroleum income tax
Indirect :tax on consumption
:e.g sales tax, service tax,
excise duty, entertainment tax
 CHARGING SECTION/SCOPE OF CHARGE
In Malaysia, the law governing income taxation is the Income Tax Act
1967 (Act 53/1967).
The transaction must fall within the scope of Section 3 of the Act in
order to be liable to income tax.
If it is not within the ambit of Sec 3 – it is tax free
SECTION 3
“ Subject to and in accordance with this Act, a tax to be known as
income tax shall be charge for each YA upon the income of any
person accruing in or derived from Malaysia or received in
Malaysia from outside Malaysia.”
TWO CIRCUMSTANCES
 it sets out two circumstances where income tax liability arises,
namely:
a) The transaction must be ‘income’ in nature and such income is
accruing in or derived from Malaysia
OR
b) The transaction must be ‘income’ in nature and its received in
Malaysia from outside Malaysia( foreign source income).
ACCRUING IN
Accruing in
 Means “earned” or “right to received”.
 Does not mean “received”.
 Income from a particular source can be earned and received in the same period.
CLASSES OF INCOME

The Act does not define the meaning of ‘income’

but merely categorizes the income under section 4
and section 4A
 SECTION 4
a) Gains or profits from a business
b) Gains or profits from an employment
c) Dividends, interests or discounts
d) Rents, royalties or premiums
e) Pensions, annuities or other periodical payments
f) Gains or profits not falling under any of the foregoing
paragraphs
 SECTION 4A
SPECIAL CLASSES OF INCOME (NON-RESIDENT PERSON)

 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 plant, machinery
or other apparatus purchased from, such person;

 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; or

 rent or other payments, made under any aggreement or arrangement

for the use of any moveable property
FOREIGN SOURCE INCOME
With effect from year 2004, foreign source income received by any
person (other than a resident company carrying on the business of
banking, insurance, sea or air transport) will be exempted from
income tax
 Income Receipts
 Chargeable to income tax
 Provision of services
 Sale of goods / trading stock
 Trading or adventure in the
nature of trade
 Sale of short-term investment
Capital receipts
 Not chargeable to income tax
 personal gift
 profit from disposal of long
term investment (properties,
shares)
 speculation, windfall gains
 Gambling
 Sale of capital assets (motor
vehicles, factory, plant &
machinery)
PERSON
Section 2 of ITA defines ‘person’ to include a company, a body of
persons, a limited partnership and a corporation sole.
Example:
1. Company
2. Individual / natural person
3. Trust
4. Club, trade association
5. Co-operative society
SUMMARY
Malaysian source Foreign income
of income received in
Malaysia
Individuals
• Resident or Non-Resident Taxable Exempted
Companies
• Resident or Non-Resident Taxable Exempted
Companies carrying on business
in banking, insurance, sea and air
transport
• Resident Taxable Taxable
• Non-Resident Taxable Exempted
 SCOPE OF CHARGE OF INCOME TAX
Capital Income

Other Income Offshore business

No Tax activity income by
offshore company

Received in M’sia from Accrued in or

outside Malaysia derived from
Malaysia

Resident bank, insurance, Other Persons Not

sea and air transport Chargeable
Taxed
irrespective of
(Sec. 3B)
Exempted from resident status
Taxed Income Tax of person
REFERENCE
Choong Kwai Fatt (2018), Malaysian Taxation: Principles and
Practices, 24th Edition, Malaysia, Inforworld