Chapter 1

Introduction to
Malaysian Taxation System
Definitions

Tax …

“contribution levied on persons, property or

business for the support of government”
(Concise Oxford Dictionary)

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 To raise government
fund for development
To promote fair and
and welfare programs
equitable justice
such as schools,
hospitals

Objectives To supervise income

and wealth distribution
To supervise private
sectors’ activities, and

of Taxation among different groups to curb bad activities

To discourage
production and Discourage imports
consumption of and to protect national
harmful products e.g. industries
tobacco/liquor

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Principles of Good Tax System

NEUTRALITY EFFICIENCY CERTAINTY SIMPLICITY

Do you think
our current tax
system have all
these?

EFFECTIVENESS EQUITY FLEXIBILITY

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Basis of Charge

 Income
 tax is charged on total income received.
 Consumption
 tax is charged on the expenses incurred.
 Property
 tax is charged on income/earning from property.
 Transactions
 tax is charged every time a transaction incurred.
 Services
 tax is charged on the provision of services.

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 1. Direct Taxes
 The responsibility to administer
Types direct taxes in Malaysia lies with
the Inland Revenue Board
of Malaysia (IRBM)
Taxes • www.hasil.org.my

 Types of direct taxes:

• Income Tax
• Petroleum Income Tax
• Real Property Gains Tax
• Stamp Duty

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 2. Indirect Taxes
 The responsibility to administer
cont’d indirect taxes in Malaysia lies with
the Royal Custom Department
 paid through a 3rd party, then
transmitted to Royal Customs
www.customs.gov.my

 Types of indirect taxes:

• Sales Tax
• Services Tax
(Goods and Services Tax
GST)
– 1 Apr 2015 – 31/8/2018
• Custom Duty (Import & Export)
• Excise duty
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 • Tax Revenue
 Direct Taxes
 Indirect Taxes

Sources of • Non-tax revenue

 Licenses, Service Fees,
Federal Road Tax, Fine &
Penalties, Rental,
Revenue Petroleum Royalties,
Revenue from Federal
Territories etc

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Federal
Revenue

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 Income tax

governed by:
Income Tax Act 1967

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What is Income Tax ?

• Income tax is “a tax charged for each year of assessment

upon the income of any person accruing in or derived
from Malaysia or received in Malaysia from outside
Malaysia”

(Section 3, ITA 1967)

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 It determines who and
what is liable to income tax
Scope of 1) World scope
Charge  taxed on all income wherever
derived.
2) Derived scope/territorial basis
 taxed on income derived from a
country
3) Derived and remittance scope
 taxed on income derived from a
country and also foreign income
remitted into the country

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 • Section 3 of ITA, 1967 provides:
“ Subject to & in accordance with this Act, a
tax to be known as income tax shall be
charged for each year of assessment upon

Scope of the income of any person accruing in or

derived from Malaysia or received in
Income Malaysia from outside Malaysia ”
Tax  Foreign income remitted into Malaysia by

Charge in 
individual is exempted until 31.12.2026
A non-resident person will be taxed on
Malaysia income derived from Malaysia only (=
derived/territorial scope).
 Income of a resident company carrying on a
business of banking, insurance, sea or air
transport wherever derived is charged to tax
on world
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 Sec. 4, ITA 1967:
 S4(a) Gains or profit from a business;
Income  S4(b) Gains or profits from employment;
subjected  S4(c) Dividends, interest or discounts;
to tax:  S4(d) Rents, royalties or premiums;
 S4(e) Pensions, annuities or other
periodical payments not falling under
any of the foregoing paragraphs; and
 S4(f) Gains or profits not falling under
any of the foregoing paragraphs.

 S4A…

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 Sec. 4(A), ITA 1967:
 Special classes of income on which tax is
chargeable.
Income  Relates to non-resident individuals for the
basis year.
subjected  The tax on these special income is

to tax collected by way of withholding tax.

(cont’d)  The special income are as follows:

 Payment for services rendered in
connection with use of property or
installation or operation of any plant,
machinery or other apparatus purchased
from a non-resident person
 Technical or management services fees
for onshore services
 Rental of moveable property

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Persons subjected to income tax

• Sec. 2 of ITA defines ‘person’ to include a company, a body

of persons and a corporation sole.
 Body of person
- trust body, club, trade association, co-operatives, etc.
 Company
 Individual
- Sole proprietor, partners in partnership .

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Basis of
Assessment
• Basis year
 the year in which
income is derived

• Year of assessment
 the year in which
income is assessed
• Basis period
 the period in which
income is derived

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Year of Assessment (YA)

 Prior to 1 Jan 2000, Malaysia adopts the preceding year

assessment (PYA). The imposition of income tax is a year
later than the derivation of income

 Since 2000, Malaysia implements current year assessment

(CYA) to replace preceding year assessment, where
assessment of income tax is concurrent with derivation of
income.

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Basis Year & Basis Period

 The basis year (BY) for a YA shall constitute the basis

period (BP) for that YA.
 e.g: BY 2023; YA 2023; BP ?

 The BP for the assessment of individual taxpayers is by

reference to the calendar year.
 What is the BP for Ms Rai – an executive officer
(individual) in B Sdn Bhd ?
 …?

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 Cont…

 The BP for the assessment of corporate taxpayers is by

reference to the accounting year of the business source.
 H Sdn Bhd (company) closes its annual accounts on 30 June
 What is the BP for H Sdn Bhd if the accounts end on
30.6.2020
 …?

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Assessment System

 Self Assessment System (SAS) replaced

the Official Assessment System (OAS) in stages:
 starting with Companies in 2001
 Individual, co-operative, trust body & other taxpayers
in 2004

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Income Tax Rates

Rates
Individual (since YA2021)

Resident (progressive rate) 0% - 30%

Non-resident (flat rate) 30%

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 Cont…

Company
YA2020 - YA2022
YA2023/YA2024
Paid-up capital up to RM2.5m
(& gross business income up to RM50m)
1st RM150,000 chargeable income 15%
RM150,001 to RM600,000 chargeable income 17%
1st RM600,000 chargeable income 17%
On subsequent chargeable income 24% 24%

Paid-up capital > RM2.5m 24% 24%

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Tutorial

 Tutorial 3 (due by 7 April 2024)

 Question 4, p 13
 Question 1, Mid Exam A231

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