Tutorial 1 – Overview of Malaysian Taxation
Question 1
a) What are the different types of taxes that can be imposed by the government?
Direct Tax
A direct tax is a tax whereby a person or
organisation pays directly to the entity that
imposed it. It cannot be shifted to any other
person or group.
Examples are income tax, real property
gains tax( dispose the property and land ),
stamp duty, petroleum income tax
Indirect Tax
( Pay through the seller, stocks )
An indirect tax is a tax whereby a person
collects tax from the respective customer
and pays to the government. It is also
contributes to the inflation.
Examples are sales and service tax, GST,
road tax, custom duty, digital taxes, excise
duty and import duty.
b) What is the significance of the two taxes for the Malaysian treasury?
In order to raise funds, the government frequently employs and imposes indirect taxes. They
are essentially taxes that are levied on all taxpayers, regardless of income, so rich or poor,
everyone must pay them. Direct taxes are significant in that those with more resources or
higher incomes should pay more in taxes. The government imposes taxes in order to collect
money and use it to fund social services such as healthcare. It will be impossible to provide
finance without taxes. For example, higher income leads to better infrastructure, which
leads to a better lifestyle for everyone. Indirect taxes are most importance tax that help the
government in developing. With the tax that have been charged through GST or sales and
service tax will be used for economic stability.
Question 2
Explain briefly the scope of charge to tax of a Malaysian resident individual under the
provisions of the Income Tax Act 1967 (as amended).
Under the section 3 of the act provides that subject to and in accordance with this Act, a tax
to be known as an income tax shall be 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. Income derived from Malaysia, such as business or employment income is
generally taxable under Income Tax Act 1967.
Question 3
What are the types of income upon which income tax is chargeable?
Under section 4, the income upon which tax is changeable under this act is income in
respect of
a) Gains or profits from a business for whatever period of time carried on
b) Gains or profits from an employment
c) Dividends, interest or discounts
d) Rents, royalties and premiums
e) Pensions, annuities and other periodical payments
f) Gains or profits not falling under any of the foregoing paragraphs.
1
Question 4
The following chargeable persons have Malaysian sources of income and foreign sources of income
for the basis year 2021 for the year of assessment 2021. State which of the income indicated in the
relevant columns would be liable to Malaysian income tax.
* remitted means transferred from Malaysia or to Malaysia
* Whole sale company - not subjected
* derived means obtain
Persons
Lim (Non-resident)
Kassim (Resident)
Tim Sdn Bhd. (Resident company)
Mawar Sdn Bhd. (non-resident )
Halim (resident)
Maybe Insurance Bhd.(resident)
Blue Line Shipping Inc (non-resident)
Malaysian source income
( taxable) - because it is
earned in Malaysia
Non-Malaysian
source income
( not subjected to
Malaysian Taxation
)
RM
30,000
150,000
260,000
264,000
230,000
19,000,000
12,500,000
RM
80,000
135,000
125,000
17,200
190,000
29,000,000
27,000,000
Remarks on
non-Malaysian
sourced income
Remitted
Remitted
Remitted
Remitted
Not remitted
Not remitted
Remitted
Suggested Answer:
Persons
Malaysian
source
income
Non-Malaysian
source income
Remarks on
nonMalaysian
sourced
income
Non-Malaysian
source liable to
Malaysian
income tax
RM
RM
No
Lim (Non-resident)
30,000
80,000
Remitted
No
Kassim (Resident)
150,000
135,000
Remitted
No
Tim Sdn Bhd. (Resident company)
260,000
125,000
Remitted
No
Mawar Sdn Bhd. (non-resident company)
264,000
17,200
Remitted
Lim, Kassim, Tim Sdn Bhd are not liable because resident receiving income from a source outside
Malaysia and remitted to Malaysia will be EXEMPTED from income under Income Tax Act 1967
Mawar Sdn Bhd is non resident company and not liable because it is only taxed when the income
derived from Malaysia which this income is remitted
No
Halim (resident)
230,000
190,000
Not remitted
He is resident but not remitted which is shows that he is not liable for Malaysian Income Tax
Not remitted
Yes
Maybe Insurance Bhd ( resident )
19,000,000
29,000,000
Maybe Insurance Bhd is liable to Malaysian Income Tax because income of a resident company
carrying on the business of banking insurance which is taxed on a world scope.
No
Blue Line Shipping Inc (non-resident)
12,500,000
27,000,000
Remitted
Blue Line Shipping Inc is non resident company and not liable for Malaysian Income Tax because
income of non resident company carrying on the business of sea transport ( shipping ) is taxed only
the income derived from Malaysia
- if not remitted then yes it is liable for income tax
Note 1 - Resident and non-resident persons receiving income from a source outside Malaysia and
remitted to Malaysia will be exempted from income under para 28 Sch 6 of the Income Tax Act 1967 (as
amended)
Note 2 - The income of a resident company carrying on the business of banking insurance and sea and
air transport is taxed on a world scope.
Note 3 - The income of a non-resident company carrying on the business of banking insurance and sea
and air transport is taxed only the income derived from Malaysia.
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Question 5
What are the stages of income between the gross income and the chargeable income? What
is the significance of the various stages?
ANSWER: The stages are as follows (Approach 1):
Gross income
Less
Allowable expenses
Double deductions
Special deductions
Adjusted income
Add
Less
Balancing charges
Capital allowances and balancing allowances
(Max: to adjusted income; balance c/f except listed
investment holding companies)
Statutory income
Add
Previous year’s business loss b/f
(not applicable to listed investment holding co)
Statutory income from other sources
Aggregate income
Less
Current year loss
Approved donations (Sec. 44(6), 44(6A), 44(8)...
Less
Personal relief
Total income
Chargeable income
X
Tax Rate (%)
Tax Chargeable
Less
Rebates – Individual//Zakat etc
Tax Payable
Significance
The income at each stage must be computed for each source since the treatment of the
income for business and non-business are different. The quantum of the income also
determines whether there will be any income to be taxed or losses to be C/F.
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Format of a Sole Proprietor Business Tax Computation
RM
(+)
Profit before taxation per accounts (say)
Less: Non-business income/non-taxable income
Dividend
Interest
Rent
Gain on sale of investments/fixed assets
Add: Non-allowable expenses
Legal fees
Loss on sale of investments
General provision for doubtful debts
Depreciation
Donation
Fixed assets written off
RM
(-)
500,000
6,000
2,000
4,000
5,000
2,000
1,000
3,000
4,000
3,000
2,500
Capital allowance
Balancing allowance
Unabsorbed capital allowance b/f
Statutory business income
Less : Unabsorbed business losses b/f
Net statutory business income
Add: Other income
Employment income
Less: Allowable expenses
Dividend
Interest
Rent
Aggregate Income
Less: Basis year business losses
Less: Donation to approved institutions
Total Income
Less: Personal relief
Self
Wife
Children
EPF
Chargeable income
17,000
483,000
15,500
498,500
4,000
494,500
10,000
504,500
Less: Double deductions (export insurance)
Adjusted Income
Add:
Balancing charge
Less:
RM
27,000
25,000
70,000
85,000
5,000
6,000
2,000
4,000
9,000
3,000
5,000
6,000
122,000
382,500
85,000
297,500
80,000
12,000
389,500
84,000
305,500
2,500
303,000
23,000
280,000
Approach 2
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