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Overview of Malaysian tax system - Coggle Diagram
Overview of Malaysian tax system
Intro
Source of revenue of Malaysian Government
Revenue collection from income tax
Sources of revenue law in which the IRB use in settling disputes
Statute law
Enacted by parliament
Contained in statute
Case law
Unenacted laws created by the decisions of the court
Those decisions can be used as reference for interpretations of let say Income Tax Act 1967
They have persuasive authority
A decision or other pronouncement of law that a court may but need not apply when deciding a case before it
They are not binding on the Malaysian courts
If the language used by a statute is ambiguous, then the court will adopt the construction of that language which is favourable to the taxpayer
We need to look simply at what is clearly said
No room for intendment (true meaning)
No equity about tax
No presumption as to a tax
The words that is used is what we should consider, we should not look the meaning behind it to give them a diff meaning that might be more acceptable to the taxpayer or the tax authorities
Informal law
Concessions
In cases where the law is clear but the tax authorities considered it to be unfair to taxpayers or its application involves admin difficulties, the IRB may not enforce the strict provisions of the law
The court has to apply the strict law instead of IRB practices
Practices of IRB that they administer & apply the tax laws through specific guidelines and public rulings
Taxpayers or tax practitioners may accept or challenge the IRB practices or rulings
Public rulings
Rulings issued by the DGIR on interpretation of the provision of tax laws
It sets out interpretation of the DGIR in respect of a particular tax law
Sets out the policies and procedures that are to be applied
It is binding on the IRB where tax officers need to follow those tax treatments stated in the public rulings
Purpose; Provide guidance for the public and officers of IRB
It's not a law, it is merely an interpretation of law
Can be challenged by the court
Advanced rulings
A taxpayer may request for an advance rulings from the DGIR on the application of any provision of the Income Tax Act 1967 to a particular transaction or arrangement
Binding on the applicant & the DG
Application (based on actual facts and not on assumptions) is made in a prescribed form
There is a fee chargeable for each application
Direct tax
Example
Income tax
Stamp duty
Tax paid on legal documents such as documents of transfer of property
Real property gains
Tax charged on the profit made on the sale of land or real property
Taxpayer pays the tax directly to the tax collector
Indirect tax
Example
Sale tax
Service tax
Custom duty
Tax imposed on imports and exports of goods
Customer pays service tax to registered person. The registered person pays tax to the Royal Malaysian Custom
Scope of charge- Income tax act 1967
It is charged for each year of assessment upon the income of any person
Accruing in Malaysia
Source of income must be in Malaysia
Derived from Malaysia
Source of income must be in Malaysia
Received in Malaysia from outside Malaysia
Resident companies carrying on specialised business
Income tax shall not be charged in respect of a Labuan entity carrying on a Labuan business activity in or from Labuan
They have their own act which is called LOBATA
Income of any person derived from sources outside Malaysia and received in Malaysia shall be exempted from income tax
However, for a resident company carrying on these businesses although the income is a foreign income, it is taxable
Insurance
Sea or air transport
Banking
How is income being taxed?
It is taxed on current year basis
Foreign income received in Malaysia which are exempted now but are taxable before 2004
Word 'received'
Refer to two persons being involved where one would give and the other would take
Constitute that the amounts have been received in Malaysia
Cross entries in the accounting records where two persons were involved
For example, two persons owe each other and decided to contra. It is considered the amounts have been received in Malaysia even though there is no actual amounts being remitted
Includes anything equivalent to money, or that may be convertible into money
Asset remitted back to Malaysia instead of income in the form of money
This is because foreign source of income may not change its character into capital
Do not constitute that the amounts have been received in Malaysia
Mere book entries in Malaysia
Once it has been received by the party entitled to it, in respect of any subsequent dealing with the said amount, it cannot be said to be received as income on that occasion
Taxability of income
Malaysian source
Taxed on a territorial basis (source of income in Malaysia) Chargeable persons except for resident companies carrying on specialised business
Non-resident
28%
Resident
Gradual scale rates
Taxed on worldscope basis that is wherever the income is derived (for resident companies carrying on specialised business)
World non-business income for the specialised business are taxable upon remittence
Foreign source
Exempted
Rates of income tax
Company
Normal
24%
Company incorporated in Malaysia with ordinary share capital not more than RM2.5 million
First RM500000
17%
Balance
24%
Non-resident individual
28%
Resident individual
Refer to table
Self-assessment system
Based on income tax laws, taxpayers are required to
Determine their taxable income
Compute their tax liabilities
Submit their income tax returns
Would not be subjected to detailed checking by the IRB
Instead, a post-assessment tax audit will be conducted to verify the correctness of the return submitted by the taxpayers
Pay their income tax liabilties
Penalties would be imposed for
Non-compliance
Understatement of income