Asian Journal of Accounting and Finance
e-ISSN: 2710-5857 | Vol. 4, No. 2, 32-47, 2022
http://myjms.mohe.gov.my/index.php/ajafin
Malaysian Tax System: An Overview
Mohammed Saleh Al-Maghrebi1*, Mazni Abdullah1, Noor Sharoja Sapiei1
1
Department of Accounting, Faculty of Business and Economics, University of Malaya,Kuala Lumpur,
Malaysia
*Corresponding Author: almaghrebi2008@siswa.um.edu.my
Accepted: 15 July 2022 | Published: 1 August 2022
DOI: https://doi.org/10.55057/ajafin.2022.4.2.3
_________________________________________________________________________________________
Abstract: In many societies and countries around the world over many centuries, taxation has
been acknowledged as a very important tool for national development and growth. The amount
of wealth (e.g., public revenue) produced by the economic activities carried out in a society is
one of the primary indicators by which development and growth should be assessed. The main
purpose of this article is giving a brief overview of the Malaysian tax system by attempting to
provide a conceptual framework. The article specifically provides a concise but precise
overview of the Malaysian tax system, tax law, and tax policies. This brief overview could lead
to better grasp of tax system among interested such as potential investors and taxpayers thus
improve future investments and tax revenue.
Keywords: Taxation, tax system, Malaysia
___________________________________________________________________________
1. Introduction
One of the ten South East Asian countries is Malaysia, which is divided into Peninsular
Malaysia and Malaysian Borneo. Malaysia has land borders with Indonesia, Thailand, Brunei
as well as maritime borders with Singapore, The Philippine, and Indonesia. Malaysia is a
developing nation that requires support from both investors and taxpayers to grow
economically. This is accomplished by attracting foreign direct investment, which raises the
employment rate thus increased tax base and, as a result, improves living conditions for
Malaysians (Irpan et al., 2016). Since becoming independent in 1957, Malaysia has experienced
notable improvements in all facets of its economy and has moved beyond its status as a producer
of raw materials. Even though the economy has been impacted by inescapable external shocks,
it has, to some extent, successfully concentrated its plans on guiding the nation toward
sustainable economic development (Solarin, & Shahbaz, 2015; Mugableh, 2015). According to
global unemployment rate statistics, it is possible for a nation to achieve a lower unemployment
rate of less than 1%. Researchers in Malaysia have examined the causes of the country's high
unemployment rate, and one of the solutions was to entice foreign capital to invest (Irpan et al.,
2016).
Based on that, it can be argued that foreign investment is essential for the Malaysian economy
because it allows for the transfer of technology and makes productivity improvements possible.
Additionally, this would contribute to rising overall per capita income. Consequently, this will
result in expand the tax base and the number of taxpayers in the country. A s result,
understanding the tax system and business environment is necessary. Where each one has
specific guidelines that must be followed to the letter. Therefore, it is frequently necessary to
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receive proper guidance prior to starting a business. In order to serve investors and taxpayers,
general regulatory issues such as tax requirements and liaising with government agencies must
all be given adequate attention. This paper therefore covers an overview of the Malaysian tax
system through the main components of the tax system which is based on many pillars that
consist of tax policy, tax legislation and tax administration. Where knowing the tax environment
will help investors and taxpayers in dealing with the tax system thus attracting foreign
investment in Malaysia i.e., increasing tax revenue which means more social welfare.
This paper presents an overview on the Malaysian tax system particularly income taxes. The
early section of this paper discusses the taxation administration in Malaysia which represented
by the IRBM. Also, in this section the functions and roles of IRBM are explained besides
activities of tax enforcement and taxpayer services. The second section of this paper provides
some details of the Self-Assessment System (SAS) in Malaysia related to its objectives,
responsibilities of individual taxpayers and tax compliance under SAS. The last section displays
the income taxes in Malaysia that explained through the definition, types of income, scope of
charge and other relevant concepts.
2. The Inland Revenue Board of Malaysia (IRBM)
Prior to 1957 the Income Tax Office was the official department to collect taxes in Malaysia,
after 1957 renamed as Inland Revenue Department (IRD). In 1996 the IRD was reorganized
and renamed to the Inland Revenue Board of Malaysia (IRBM). IRBM is an agent of Malaysian
government to collect tax revenue from eligible taxpayers both corporate and individuals.
IRBM was established to be more autonomy in aspects of management and to enhance the
quality of tax collection and effectiveness of the procedures to gather and administer the state’s
direct taxes (IRBM, 2008). For more details on IRBM the following sections provide more
information about this topic.
2.1 Functions of the IRBM
IRBM as a leader in tax management the main mission of IRBM is to provide the required
services transparently and quality to upgrade tax compliance. Furthermore, to implement a fair
and an effective tax system (IRBM, 2009). According to the annual report of IRBM (2017) the
IRBM's functions can be briefed as follows:
a) Providing the services for clients in administering and collecting of income tax and other
taxes that agreed between government and IRBM.
b) To provide the government with the appropriate advices regarding the matters of
taxation and tax plans.
c) To participate within or outside Malaysia regarding tax matters and performing any
functions that conferred by the written law.
d) Can acting as the collecting agent for any government body to recover any amounts due
in accordance the written law.
2.2 Tax Education Program
In the SAS tax education or tax knowledge is essential element. In any tax system the taxpayers
need to an adequate knowledge on regulations and tax laws to aid them in computing and
reporting the true income in order to prepare a precise and fully tax returns (Palil, 2010). A
common objective of tax education program is to persuade and encourage taxpayers to comply
with tax code. Further, there are other objectives behind tax education program as formulated
by Mahfar (1994): a) to increase the tax awareness among taxpayers, b) to enhance the
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knowledge of taxpayers about tax law, c) to improve the taxpayers’ compliance voluntarily,
and d) to keep a good relationship between tax authorities and taxpayers.
Expanding the tax base is an important strategy to ensure a continuous and fixed flow of revenue
collection. For instance, the IRBM in Malaysia is carrying out some procedures to develop tax
knowledge through concentrating tax education and sharing information with others. Moreover,
IRBM implementing various methods in providing enough understanding of tax code among
potential and current taxpayers in order to boost tax compliance. Also, IRBM continuously
performing tax education programs through lectures and workshops on taxation (IRBM, 2015).
2.3 Tax Enforcement Activities
Tax enforcement approach is linked to tax compliance operations. The activities of tax
enforcement and the pressure on taxpayers seemingly make taxpayers unsatisfied of tax
authorities, although such activities are necessary (Kirchler, 2007). Whereas tax education
activities are indispensable in installing tax awareness amongst taxpayers about their
responsibilities towards tax authorities and about their rights as stipulated by the tax code. The
enforcement activities are inevitable at least when required, in order to reshape taxpayers'
behavior, create a typical compliance and expand tax base according to law.
Tax enforcement activities can be performed through tax audit, investigation and probability of
detection method. Under the SAS, tax audit activities are a primary function of IRBM. The aim
of tax audit is to enhance tax compliance accordance with tax code and the related regulations.
Thus, the taxpayer can be chosen for audit operation at any time (IRBM, 2013b). Since the tax
audit has become as a main function of the IRBM, according to the tax law, IRBM can conduct
the necessary operations to ensure that all the submitted documents of taxpayers are correct and
reliable. These procedures authorize IRBM to call for more information from taxpayers such as
records, bank statements, annual financial reports and any document is important for
completing examination steps by IRBM (IRBM, 2007). Moreover, according to tax audit
framework of IRBM, there are two types of tax audit namely: desk audit and field audit. Desk
audit is normally conducted at IRBM branches or at attached offices, while field audit carried
out practically at taxpayers' premises.
2.4 The Role of Information Technology and Tax Services/ Electronic Service
In order to improve the level of tax compliance, tax authority seeks to utilize the proper tools
to provide the enough quality of the provided services. The services can assist taxpayers to
comply with satisfaction, build a good relation between tax authority and taxpayer, and keep
taxpayer on constant contact with the new changes of the regulations and policies (Chadwick
& May, 2003; Jenkins, 1996). In SAS, information technology is an important tool to support
IRBM plans and activities to discover non-compliance cases and providing the administration
with the required database. Information technology is important for taxpayers as well, in
providing them with the wanted forms and information during payments process and
registration. For instance, information technology aids management to pass its services to
taxpayers effectively like e-filling system, e-payment system, online supporting and calling,
and deliver tax information regularly to taxpayers (Jenkins, 1996; Sabitova & Khafizova, 2015).
Furthermore, to speed up and facilitate the transactions, information technology as key
department of IRBM is playing a vital role by covering all administration functions
simultaneously such as revenue collection processing, automatic auditing and investigation,
amendments evaluation. Also, technology tools let management to analyzing the collected data
by computer, and this enable IRBM teams to ensure that all activities have been conducted
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completely and efficiently, this will raise efficiency of the tax administration which in turn, will
boost taxpayers' confidence as well as enhance the responsibility (IRBM, 2007).
3. The Self-Assessment System in Malaysia
In the last twenty years, increasingly in many countries a several of tax administrations have
adopted self-assessment as completed tax system for taxpayers (Loo et al., 2009). In Malaysia
income tax was first established in 1948, while in Sabah and Sarawak states in 1957 and 1961
respectively. Before the establishment, there had been a set of events were performed in order
to developing the income tax system (Mahmood, 2012). As required in SAS system, taxpayer
must declare on his/ her tax income truly, calculating the tax due and prepare tax return in
accordance with tax law. Thus, in order to reinforce tax compliance in Malaysia, in 2005 the
IRBM has applied the SAS system on individual taxpayers. In SAS system, tax return is
considered as the notice of assessment as for both taxpayer and tax authority (Fatt & Khin,
2011). In a simple word, SAS system could be seen as a “do it for yourself” procedure (Cornell,
1996,p.12).
3.1 Objectives of Self-Assessment
The federal tax revenue in Malaysia consists of direct and indirect taxes. The direct taxes are
managed by IRBM, while the indirect taxes are managed by the Royal Customs Department.
However, both of them are controlled by Ministry of Finance. Based on Act 1995, IRBM was
created to conduct all the responsibilities that assigned by the law like collecting and tracking
all activities related to direct taxes (Abdul-Jabbar, 2009). For maximizing tax revenue, which
means maximizing the compliance rates, this requires a compliant taxpayer and has a positive
attitude toward tax payments and able to achieve his obligations. Hence, in SAS the tax
authorities need to understand taxpayer's behavior. Furthermore, the authorities need to have
the proper tools, methods and systems to support compliant taxpayers and reconsider in the
approach to deal with non-compliant taxpayers and enforced the appropriate method to reached
the wanted compliance (Loo et al., 2009).
The general objective of the SAS is to simplify tax operations, encourage compliance and
minimizing non-compliance for purpose reaching the optimum tax revenue (Loo et al., 2009).
Under self-assessment the IRBM implements all the taxation programs through focusing on tax
collection accompanied with tax audit and monitoring which are considered the main activities
of SAS system. Further, providing tax services, innovation in the work, and improvement in
services, meanwhile, applying the enforcement activities, visits to premises and investigations
are conducted constantly to ensure the level of tax compliance (IRBM, 2007). By SAS system
IRBM seeks to raise online services, aligned with providing quality and transparent processes.
Another strategic objectives that are accomplished through SAS are saving cost and time, and
promoting public confidence (IRBM, 2015).
3.2 Self-Assessment for Individuals
Obviously, SAS system presents large challenges for both the revenue authorities and taxpayers
(Loo et al., 2009). As tax law granted the right for IRBM to carry out a set of activities to
enhance its operations, as well tax law grants to taxpayers several of rights such as the right to
appeal on the assessment or modify the assessment by submitting the notice letter within 30
days (IRBM, 2008). As well as, for taxpayer the right to get explanation on the objective of tax
audit and the right to get advice and guidance when needed (IRBM, 2009). On the other hand,
taxpayer must fulfill all of his responsibilities which must be fulfilled on the time. For example,
taxpayer must fill up the tax return by himself, and is required to know the law and comprehend
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the tax system. Also, taxpayer has to be co-operative, honest and well-mannered with full
transparency in dealing with tax authority. Providing the appropriate facilities to enable the
IRBM teams to conduct their duties as outlined in tax law (IRBM, 2013a).
Within SAS system requiring from taxpayer to keep the original documents and records
correctly until needed, calculating the tax return correctly and accurately and submitting as per
the due date using e-Filing. If the tax return was not submitted in the due date the penalization
will be imposed as in the law (IRBM, 2013a, 2016). Moreover, the taxpayer under SAS is
required to pay all due of taxes and penalties that emerged based on audit operation. However,
to simplify the payments, it is allowed for taxpayer to pay the due amount in installments.
Furthermore, taxpayer may use the online banking services to settle and pay the tax and other
related money (IRBM, 2008).
3.3 Tax Compliance in SAS System in Malaysia
The target of employed the SAS system in Malaysia is "to reduce administration costs, improve
voluntary compliance rates and facilitate tax collections” (Loo et al., 2009,p.181). This
indicates to the challenges that facing SAS system by tendency of some taxpayers to reduce the
amount of tax payable, and IRBM of Malaysia like any tax authority suffering from the tax
non-compliance among some taxpayers, thus IRBM attempts from time to time to improve tax
compliance. In Malaysia, IRBM is the major contributor to states' prosperity and people’s
welfare, this is by application the planned strategic which include in the first place improving
voluntary tax compliance and by expanding the tax base, decreasing tax leakages, lastly
developing tax arrears management (IRBM, 2016).
To show the fairness of tax system for all, tax authority represented by IRBM exercised strict
procedures against taxpayers who reject to comply with tax code. In addition, IRBM takes in
account by risk management the effects and causes of tax non-compliance. Therefore, the tax
administration continuously focusing on preventing occurrence the tax arrears as much as
possible and trying to determine the causes of tax arrears, and applying effective debts
collecting approaches (IRBM, 2017). Presence of the proper strategies to widen tax base are
necessary to guarantee a sustainable tax revenue collection. Thus, IRBM always taking a
serious proceedings to raise tax awareness and tax knowledge through implementing several
tax education programs that are accompanied with reinforcing information sharing and
seminars and workshops (IRBM, 2015, 2017).
E-filling is a method to fill and submit income tax return electronically (IRBM, 2016). As part
of the tax management responsibilities, the IRBM has applied the automation in SAS to aid to
decrease any possibility of difficulties or impediments taking place between IRBM and
taxpayers. For IRBM, the tax returns and any documents that should be submitted had to subject
different processes, most of these processes completing electronically. This method leads to no
likelihood of human errors or intervention. To ensure the security in the employed system, the
system is secured by username and passwords and is limited to a certain staff of IRBM. In
addition, to improve the level of tax compliance, the IRBM has allowed to taxpayers to access
to the wanted information rapidly and effectively and it is available at any time. By the same
token, to simplifying the tax system taxpayers can access from any location utilizing their
mobile or any electronic devices like office computer or laptop (IRBM, 2015).
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4. Income Taxes in Malaysia
Taxes in Malaysia comprises of two main sets, namely direct taxes and indirect taxes. Direct
taxes, which are individual taxes and corporate taxes that controlled by IRBM, while the
indirect taxes, which are import and export duties, sales tax, excise duties and services, these
taxes controlled by the Royal Customs Department (Pope & Abdul-Jabbar, 2007; Sapiei &
Abdullah, 2021). The IRBM was created as agent for federal government in accordance with
Act 1995, and is the responsible to administrate the direct taxes, where individual tax is one of
those taxes that is under IRBM. The follows Figure 2.1 shows the types of taxes in Malaysia.
In Malaysia, individual tax is the income tax that applies to salary of individuals or wage
earning and self-employed. In these two sets of taxpayers are required of them to fill up their
yearly tax returns based on income that received. Self-employed category their income usually
derived from own work or any business sources (Palil, 2010).
4.1 Definition of Individual
Under the Income Tax Act (1967), income tax is imposed on a person who has income derived
from Malaysia or received in Malaysia from outside Malaysia. The Malaysian Income Tax Act
1967 referred to the individual as a natural person who is not company or is unincorporated
body of persons.
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4.2 Scope of Charge
The scope of income tax refers to the limits of tax within country and to the income that would
be taxable in the country. Based on section 3 of Income Tax Act 1967, the imposed tax on
income is annually estimated on the income of the person his/her income from Malaysia or
received in Malaysia from outside Malaysia. Further, income tax in Malaysia is charged on a
territorial basis, that means tax is chargeable on income derived from Malaysia, if there is
foreign income is remitted from outside Malaysia, no liability will arise. Where the employment
is exercised partly outside Malaysia, the individual’s liability to tax will not be affected if it is
established and exercised fully in Malaysia or the work done outside Malaysia is an extension
of the Malaysian employment (Singh & Josef, 2014). The scope of charge for income tax is
summarized in Figure 2.2.
4.3 Source of Income
The Malaysian law did not specify a clear meaning of ‘income’ however only referred to a
merely categories in section 4 (Sapiei & Abdullah, 2021). The follows are the classification of
income according to the Income Tax Act 1967, section 4:
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 or premiums.
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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.
Addition to the above, according to section 4A of Income Tax Act, there are a special classes
of income to be taxable of person not resident in Malaysia as follows:
a) amounts paid in consideration of services rendered by the person (e.g. installation or
operation of any factory, machinery).
b) amounts paid in consideration of technical advice or assistance (e.g. technical
management, administration of any industrial undertaken, project, schemes).
c) rent or other payments made under agreement or arrangement (e.g. moveable property).
4.4 The Basis of Assessment
Time is an essential component in taxation. The receiving time of income and the time that
should be taxed are related to the concept of the basis year and the assessment year. Basis period
means the period relative to a year of assessment, while the basis year for a year of assessment
is the calendar year (Kasipillai, 2017). According to section 2, Income Tax Act 1967, the basis
year for an individual is “the calendar year coinciding with a year of assessment”. Tax is
assessed based on a year of assessment which means the calendar year (Sapiei & Abdullah,
2021). For instance, the year of assessment 2020 starts from 1 January 2020 to 31 December
2020. In SAS system the tax return for year 2019 must be submitted to IRBM within January
and March 2020, and not later than 30 April 2020 as deadline for payment and for any
outstanding if any.
4.5 Computation of Chargeable Income
In Malaysian self-assessment, the law controlling income taxation is the Income Tax Act 1967,
and the transaction has to fall within the period of the scope of charge as mentioned in the law,
in order to identify the due income tax (Choong, 2021). The chargeable income of the individual
is evaluated according to the section 5 of Income Tax Act which can be sketched as in the
following flow chart:
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The main concepts that mentioned in the above flow chart can be expounded briefly in the
following subsections (Act, 1967; Choong, 2021; Sapiei & Abdullah, 2021):
4.5.1 Adjusted Income
The adjusted income of a person is the ascertained amount from the source after deducting the
legal/ allowable expenses from gross income. The legal expenses must have the following
required attributes as mentioned in section 33 of Act:
a) outgoing or expenses.
b) wholly and exclusively.
c) incurred.
d) in the production of gross income.
4.5.2 Statutory/ lawful Income
The statutory income is the outcome of adding the balancing charges to adjusted income and
deducting the capital allowances. This is only applicable with business sources, while the
income from non-business sources will be the same adjusted income. Statutory income =
(adjusted income + balancing charges) - capital allowances.
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4.5.3 Aggregate Income
Aggregate income is the summation of statutory income from all businesses sources after
deducted unabsorbed business losses. For more explanation in the following equation:
Statutory income = (business 1 + business 2) - unabsorbed business losses.
4.5.4 Total Income
The total income is the residue of aggregate income after deducting the following elements:
a) adjusted loss for the current basis period (business loss).
b) prospecting expenditure.
c) qualifying pre-operational business expenditure.
d) business Zakat payment by corporate and any approved donations for government or
for institution is recognized by authorities.
e) group loss relief.
4.5.5 Chargeable Income
The chargeable income for a resident person would be his/her total income deducted by his/her
personal reliefs (personal reliefs are allowed for only a resident person in Malaysia). The
chargeable income for other such as companies, trade associations, trusts, and clubs would be
the same as total income. More details about tax computation for a resident person will be
shown in Table 2.1.
Table 2.1: Sample of tax computation
Explanation
RM
Gross income
xxx
Less: all allowable deductions in sections 33,39
xx
Aggregate income
xxx
Less: approved donation (10% of aggregate income) in section 44
xx
Less: personal reliefs in sections 46-49
xx
Chargeable income
xxx
Income tax payable at scaled rate
xx
First slide
xx
Next slide
xx
Less: tax credit on individual income
xx
Net income tax payable
xxx
Source: Choong (2021)
4.6 Personal Reliefs and Deductions
Personal reliefs are related to the circumstances of individual taxpayer in the basis year for the
year of assessment. The personal reliefs will be accorded to individual taxpayer without gender
bias (Singh & Josef, 2014). In Malaysia, once a taxpayer's income reaches the chargeable
income threshold, taxpayer can take advantage of personal reliefs and deductions (IRBM,
2021). An example of these reliefs and deductions: Medical treatment, and career expenses for
parents, special needs, education fees (self) or any course of study, medical expenses on serious
diseases for self, spouse, or children, purchase of personal computers, smartphones, or tablets
for self, spouse, or children. Furthermore, the Malaysian law allow taxpayer to deduct
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breastfeeding equipment, life insurance, private retirement scheme and deferred annuity. Also,
education and medical insurance, equipment for disabled self, spouse, children, or parents can
be deducted. Besides, the donation to charities or any bodies approved by government. For
more details on these and other personal reliefs with the amount to be deducted for each item,
see Appendix A.
4.7 Tax Rates
There are two sets of tax rates applied and mentioned in Section 1 of the Act 1967, namely
fixed rates and graduated or scaled rates which depending on the kind of individual chargeable
and on the residence status of individual. A graduated scale of tax rates is applied to charge
income of resident individual taxpayer. According to IRBM, non-citizen employed in Malaysia
has to report on his tax condition and chargeable income to any Non-Resident Branch of IRBM
or nearest IRBM within 2 months of their arrival to the Malaysian land.
Based on IRBM regulations, with effect year 2015 any person his annual income more than
RM34,000 (i.e RM2,833.33 a month) after EPF deductions (tax reliefs) has to register and fill
up the tax return. Taxpayer has to pay due tax on all sources of income, for example income
from own business or profession, dividends, employment, interest, rent, discounts, royalties,
pensions, premiums, annuities, and others. The quantity of tax payable on personal income is
derived based on identified tax rates for assessment year 2021 as in the following Table 2.2:
Table 2.2: Individual tax rates 2021
Chargeable income
Category/calculation
Tax rates
Tax (RM)
0-5,000
On the first 5,000
0
0
5,001-20,000
On the first 5,000
0
0
Next 15,000
1%
150
20,001-35,000
On the first 20,000
Next 15,000
35,001 – 50,000
100,001 – 250,000
400,001 – 600,000
1,000,001 – 2,000,000
21%
On the first 1,000,000
6,300
10,900
24%
36,000
46,900
24.5%
36,750
83,650
25%
On the first 600,000
Next 400,000
2,800
4,600
On the first 400,000
Next 200,000
600,001 – 1,000,000
14%
On the first 250,000
Next 150,000
1,200
1,800
On the first 100,000
Next 150,000
250,001 – 400,000
8%
On the first 70,000
Next 30,000
450
600
On the first 50,000
Next 20,000
70,001 – 100,000
3%
On the first 35,000
Next 15,000
50,001 – 70,000
150
50,000
133,650
26%
104,000
237,650
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Next 1,000,000
Exceeding 2,000,000
28%
On First 2,000,000
Exceeding 2,000,000
280,000
517,650
30%
…..
Source: www.hasil.gov.my, accessed 2021
4.8 Appeal Procedures
Under SAS system for individuals, a several rules and procedures have been founded relate to
taxable income, filling and submitting tax return online and imposition of penalties. On other
side, as the law imposed a set of duties on taxpayers, meanwhile the tax law has given taxpayers
a set of rights in order to achieve the fairness of the tax system. According to provisions of
Income Tax Act 1967, after receiving the assessment from IRBM taxpayer has the right to
appeal against IRBM’s assessment. Moreover, if the taxpayer is discontented with refundable
amount, the Act given taxpayer the right to appeal against it.
The appropriate procedure to fill up the appeal form is if taxpayer is disputed with the assessed
amount on the ground the amount of tax is incorrectly assessed, excessive, and incorrectly
increased (Kasipillai, 2017). The notice of appeal must be made within 30 days after receiving
the assessment notice from tax authorities, while the appeal against the advanced assessment
must made within three months of assessment year. In that cases the taxpayer’s tax return has
to be accompanied with appeal form (Sapiei & Abdullah, 2021). Also, IRBM’s regulations
indicated to that the taxpayer has to submit to IRBM's branch who handling the taxpayer's
income tax file, the original form of appeal for the year of assessment with three copies. The
Malaysian law granted the taxpayer the right to appeal to the High Court as the final appeal if
the taxpayer is not satisfied with the tax administration’s final decision. In this case the decision
of High Court will be the final and last decision, and the taxpayer must implement the decision
(Sapiei & Abdullah, 2021).
4.9 Offences and Penalties
The taxpayer has a duty and responsible to government represented by tax authorities regards
to income tax under tax law. In order to deter tax evasion and prevent taxpayer from engaging
in tax non-compliance, the tax law has included a group of provisions such as imprisonment,
penalties and fines against involved taxpayer in offences. The offences and penalties were
illustrated by IRBM’s official website, Table 2.3 tried to summarize the offences and penalties
of individual taxpayer as in the following:
Table 2.3: Offences and penalties for individual taxpayers in Malaysia 2021
Sections in Penalty
Income
Tax Act
1967
Failure to furnish an Income Tax Return 112(1)
From RM200 to RM20,000 or imprisonment
Form.
not more than 6 months or both (dependent
on the case)
Failure to provide a notice of chargeability 112(1)
From RM200 to RM20,000 or imprisonment
to tax.
not more than 6 months or both (dependent
on the case).
Making an untrue tax return by deleting or 113(1)(a)
From RM1,000.00 to RM10,000.00 and
understating income.
200% of tax undercharged
Offence
Provided an incorrect information or data
lead to affecting the tax liability of
taxpayer or affecting any other person.
113(1)(b)
From RM1,000.00 to RM10,000.00 and
200% of tax undercharged
43
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Asian Journal of Accounting and Finance
e-ISSN: 2710-5857 | Vol. 4, No. 2, 32-47, 2022
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Engaging in tax evasion intentionally and
willfully or aid any other person to evade
taxes.
Help or advise others taxpayers to under
declare their income (without reasonable
care).
Trying to travel out of the country without
payment of taxes.
114(1)
Prevent any authorized employee of IRBM
in conducting his duties.
116
Failure in keeping the required records and
documents (without reasonable excuse).
119A
Failure in dealing with a notice from
IRBM that asking for certain or extra
information.
Failure to provide IRBM with a notice
indicated to changes of taxpayer's address
within three months.
Pay tax after deadline 30th April.
120(1)
Pay the due instalments after 30 days of the
due date.
Actual tax is higher by 30% than the
revised estimate of tax.
Source: www.hasil.gov.my, accessed 2021
107B (3)
114(1A)
115(1)
120(1)
103(3)
107B (4)
From RM1,000 to RM20,000 or
imprisonment not more than three years or
both and 300% of tax undercharged
From RM2,000 to RM20,000 or
imprisonment not more than three years or
both
From RM200 to RM20,000 or imprisonment
not more than 6 months or both (dependent
on the case)
From RM1,000 to RM10,000 or
imprisonment not more than one year or
both
From RM300 to RM10,000 or imprisonment
not more than one year or both
From RM200 to RM20,000 or imprisonment
not more than 6 months or both (dependent
on the case)
From RM200 to RM20,000 or imprisonment
not more than 6 months or both (dependent
on the case).
a. must pay 10% from the tax payable
b. also must pay 5% on the balance, if
payments are not settled after 60 days from
the final due date
Must pay 10% on instalment due
Must pay 10% of the variation in actual tax
balances and estimated tax made
5. Conclusion
This paper provided an overview on the Malaysian tax system in general and attempted to
outline in short on the implementation of the self-assessment system in Malaysia. This paper
also highlighted some of IRBM's functions and responsibilities as granted by the law, likewise,
was highlighted briefly on taxpayers' duties and rights as well. Tax system, as previously
discussed in this paper, is an important authority used by various nations since the beginning of
human history in the development of the society and redistribution of wealth within the state.
This paper provided an overview on the tax system, tax laws, and tax policies of Malaysia. This
paper also presented some key ideas that form the basis of the nation's tax code as well as some
noteworthy tax-related points. Malaysia is one of the nations in the world attempting to both
attract investors and broaden the tax base. The nation's various institutions must collaborate in
order to make the tax system understandable to all parties involved. For instance, providing
potential information to taxpayers and investors to reduce the tax gap and improve the favorable
tax environment. Therefore, tax system components beside different government agencies will
work together by share information for interested parties to ease tax issues. Ultimately, this
would work in maximizing the compliance and minimizing evasion which, in turn, will extend
tax revenue level.
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44
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Asian Journal of Accounting and Finance
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http://myjms.mohe.gov.my/index.php/ajafin
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Appendix A: Personal Reliefs and Deductions
No.
Individual Relief Types
Amount (RM)
1
Individual and dependent relatives
2
Medical treatment, special needs and career expenses
9,000
5,000 (Restricted)
OR
OR
Parent
Restricted
to
1,500
Restricted to 1,500 - only one father
3
3000 (Restricted)
only
one
mother
Basic supporting equipment (e.g., disabled self, spouse, child or parent)
4
Disabled individual
5
Education fees (Self)
6,000 (Restricted)
6,000
7,000 (Restricted)
Degree at masters or doctorate level - Any course of study
6
Medical expenses (for self, spouse or child)
7
Medical expenses (for fertility treatment for self or spouse)
8
Complete medical examination (for self, spouse, child (Restricted to
500)
9
Lifestyle – Expenses for the use / benefit of self, spouse or child in
respect of:
i.
ii.
iii.
iv.
purchase of books - journals -magazines - printed newspapers
- other similar materials)
purchase of personal computer, smartphone.
purchase of sports equipment
payment of monthly bill for internet subscription (Under own
name)
6,000 (Restricted)
2,500 (Restricted)
11
Purchase of breastfeeding equipment for own use or for a child aged 2
years and below
1,000 (Restricted)
12
Childcare fees (for a child aged 6 years and below)
3,000 (Restricted)
13
Net deposit in Skim Simpanan Pendidikan Nasional
8,000 (Restricted)
14
Husband / wife / payment of alimony to former wife
4,000 (Restricted)
15
Disabled husband / wife
3,500
46
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Asian Journal of Accounting and Finance
e-ISSN: 2710-5857 | Vol. 4, No. 2, 32-47, 2022
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16
Each unmarried child and under the age of 18 years old
2,000
17
Each unmarried child of 18 years and above who is receiving full-time
education
2,000
18
Each unmarried child of 18 years and above that:
8,000
i.
ii.
receiving further education in Malaysia or out
receiving further education outside Malaysia
19
Disabled child
6,000
Additional exemption of RM8,000 disable child age 18 years old and
above, not married and pursuing diplomas or above qualification in
Malaysia
8,000
20
Life insurance and EPF
7,000 (Restricted)
21
Deferred Annuity and Private Retirement Scheme (PRS)
3,000 (Restricted)
22
Education and medical insurance
3,000 (Restricted)
23
Contribution to the Social Security Organization (SOCSO)
250 (Restricted)
24
Payment for accommodation at premises
1,000 (Restricted)
47
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