UBAT3013

BUSINESS TAXATION

Lecture 1:
SCOPE & BASIS OF MALAYSIAN TAXATION

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 Learning Objectives
You should learn from this topic:

 Types of taxes in Malaysia

 Scope of charge of Malaysian tax
 Chargeable persons
 Classes of income chargeable to tax
 Tax rates
 Basis year, basis period and year of
assessment
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 Importance of Tax Policy

• Granting fiscal incentive to encourage economic

growth.
• Regulating the distribution of income and
wealth.
• To provide funds for numerous projects
• Improving the disadvantaged sectors of society.
• Regulating specific undesirable activities e.g.
smoking, gambling, drinking, etc.

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 Types of Taxes in Malaysia

Direct Tax Indirect Tax

•Income tax •Sales and Service Tax
•Real Property Gains Tax (SST)
(RPGT) •Custom Duties
•Petroleum Income Tax •Excise Duty
•Stamp Duty •Gaming Tax
•Withholding taxes •Entertainment Tax

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 Direct Tax vs Indirect Tax

Direct Tax
Tax paid by those on whom it is levied (e.g.
Income Tax)

Indirect Tax
Tax added to the price of a product or service
and collected by an intermediary on behalf of
the tax authorities (e.g. SST)

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 Scope of Charge

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.
[Section 3, Income Tax Act 1967]

* Received – come into

possession

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 Scope of Charge
Income?

What is Income ?
• Not define in ITA, 1967
• ITA 1967 only determine classes of income S4 – S4A
• Income has the characteristic of repetitive, flow from a
source of income and received in ordinary of business.
• Distinction between capital receipts and income receipts

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 Classes of Income Chargeable to Tax
Section 4, ITA 1967

S 4 (a) – Gains of profits from a Business

S 4 (b) – Gains of profits from an Employment
S 4 (c) – Dividends, Interest or Discounts
S 4 (d) – Rents, Royalties or Premium
S 4(e) – Pensions, Annuities or Other Periodical
Payments
S 4 (f) – Others

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 Special Classes of Income
Section 4A, ITA 1967

• Special Class of Income

• Subject to tax if they are deemed derived from

Malaysia

• Related to services rendered by non-resident

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 Special Classes of Income
Section 4A (i), ITA 1967

S4A(i), ITA 1967

oAmounts paid in consideration of services in
connection with
a)the use of property or rights belonging to,
b)installation or operation of any plants,
machinery or other apparatus purchased from,
such person

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 Special Classes of Income
Section 4A (ii), ITA 1967

Section 4A(ii), ITA 1967

Amounts paid in consideration of :
a) technical advice
b) technical assistance
c) technical services
rendered in connection with technical, management or
administration of any scientific, industrial or commercial
undertaking, venture, project or scheme.

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 Special Classes of Income
Section 4A (iii), ITA 1967

Section 4A(iii), ITA 1967

•Rent or other payments made under any agreement or

arrangement for the use of any moveable property

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 Scope of Charge
Income : Capital Receipts

Capital Receipts
 Gift
 Realization from long term investment
 Sales of personal/capital assets
 Gambling
 Speculation, windfall gains

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 Scope of Charge
Income : Income Receipts

• Income Receipts
• Provision of services
• Sale of goods/ trading of stock
• Trading or adventure in the nature of trade
• Sale of short term investment

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 Scope of Charge
Income: Example 1.1

Rachel is an engineer. On a business trip to Paris, she

acquired a piece of diamond at exhibition for personal use
and expects the value of diamond to appreciate over years.

3 years later, she sold the diamond to PohLong at a

substantial profit. Rachel had not previously disposed of
any diamond.

Question: Explain, whether the profits is liable to tax?

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 Scope of Charge
Income: Example 1.1 (Answer)
Rachel, although having business interests, do not
necessarily implies that all transactions carried out by her
would be considered as trading transactions.

Intention of acquisition diamond is crucial. The nature of

the asset purchased is more on personal use.

Thus, to income tax because it is a .

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 Scope of Charge
Income: Example 1.2
Richard is a sales executive with ABC Sdn Bhd. In addition, he
also works as an enforcer in the downbeat part of his town.

He makes a living by extorting money from local traders to

protect their business interest. On the basic that the extortion is
an illegal activity, he earns RM 17,500 from the extortion
income

Question: Explain, whether the RM 17,500 is liable to tax?

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 Scope of Charge
Income: Example 1.2 (Answer)

Even though the extortion income earns by Richard is

illegal income, it is derived from kind of trading/ business
of providing protection of business interest for the local
traders.

The income of RM 17,500 is a and thus, it

is to Malaysian income tax.

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 Scope of Charge
Chargeable Person
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.
[Section 3, Income Tax Act 1967]

Sec 2 defined *person*-include a company, a body of persons and a corporation sole.

 Individual
 Company  Hindu joint family
 Trust
 Body of persons  Club
 Trade association
 Not Partnership – individual partner will be assessed to tax.

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 Scope of Charge
Income accruing in or derived from Malaysia

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.
[Section 3, Income Tax Act 1967]

Income accruing in or derived from Malaysia

Malaysian source income
Taxable even though not received

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 Scope of Charge
Income received in Malaysia from Outside Malaysia

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.
[Section 3, Income Tax Act 1967]

Income received in Malaysia from Outside Malaysia

Foreign source income
Taxable if received in Malaysia, unless
exempted

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 Scope of Charge
Foreign Source Income

Foreign source income received by *any person* is

exempted from income tax with effect from Y/A 2004.

NOTE:
Exception:
Resident company carrying on the business
of banking, insurance, sea or air transport

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 Scope of Charge
World Scope Basic

Resident companies carrying on the specialised

businesses (banking, insurance, sea and air
transport) are being assessed on world scope basis,
that is, income wherever derived, even though the
income is not received in Malaysia.

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 Scope of Charge
Year of Assessment

o The year in which income is assessed for tax purposes.

o The income to be assessed in a year of assessment is the

income earned in the basis period.

o W.E.F 1 Jan 2000, Malaysia implements current year

assessment.

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 Scope of Charge
Year of Assessment
(Company, Trust Body, Limited Liability Partnership, Co-operative Society)

oWith effect from YA 2004, only they can have its basis period
for a YA to be on a calendar / non-calendar year basis.

Example: calendar year

• YA 2018: 1 January 2018- 31 December 2018

Example: Non calendar year

• YA 2018: 1 May 2017 – 30 April 2018
• YA 2018: 1 November 2017 - 31 October 2018

oWEF 2013, LLP is given the same treatment as company

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 Scope of Charge
Year of Assessment
(Persons other than co, co-operative/ trust body)

oWith effect from YA 2004, the income source of a person

will be on calendar year basis.

oEg: Individual (calendar year)  YA 2018: 1.1.2018-

31.12.2018
Non-business source

oPayment of tax and submission of return not later than 30

April or 30 June of the following year.
Business Source
oSelf assessment system
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 Scope of Charge
Year of Assessment (Company)

• Refer to:
• Public Ruling No. 8/2014
Basis Period for A Company, Limited
Liability Partnership, Trust Body and Co-
operative Society

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 Tax Rates:
INDIVIDUAL

Scale rate/ graduated rate

• income is taxed at progressively higher rates
of tax (higher income at higher rates)
• resident individuals (YA 2019, 0 – 28% )
(YA 2020, 0 – 30% )
Fixed rate/ flat rate
• non-resident individuals (YA 201928%)
(YA202030%)

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 Tax Rates: RESIDENT individual
YA 2020 Resident Individuals
Chargeable income (RM) Calculations (RM) Rate (%) Tax (RM)
1 - 5,000 First 5,000 0 0

5,001 - 20,000 On the First 5,000 0

Next 15,000 1 150
20,001 - 35,000 On the First 20,000 150
Next 15,000 3 450
35,001 - 50,000 On the First 35,000 600
Next 15,000 8 1,200
50,001 - 70,000 On the First 50,000 1,800
Next 20,000 14 2,800
70,001 - 100,000 On the First 70,000 4,600
Next 30,000 21 6,300
100,001 - 250,000 On the First 100,000 10,900
Next 150,000 24 36,000
250,001 - 400,000 On the First 250,000 46,900
Next 150,000 24.5 36,750
400,001 - 600,000 On the First 400,000 83,650
Next 200,000 25 50,000
600,001 - 1,000,000 On the First 600,000 133,650
Next 400,000 26 104,000
1,000,001 - 2,000,000 On the First 1,000,000 237,650
Next 1,000,000 28 280,000
On the first 2,000,000 517,650
Exceeding 2,000,000 30 29
 YA 2019 Tax Rates: RESIDENT individual
Resident Individuals
Chargeable income (RM) Calculations (RM) Rate (%) Tax (RM)
1 - 5,000 First 5,000 0 0
PLEASE 5,001 - 20,000 On the First 5,000 0
USE Next 15,000 1 150
THIS 20,001 - 35,000 On the First 20,000 150
Next 15,000 3 450
RATE!
35,001 - 50,000 On the First 35,000 600
Next 15,000 8 1,200
50,001 - 70,000 On the First 50,000 1,800
Next 20,000 14 2,800
70,001 - 100,000 On the First 70,000 4,600
Next 30,000 21 6,300
100,001 - 250,000 On the First 100,000 10,900
Next 150,000 24 36,000
250,001 - 400,000 On the First 250,000 46,900
Next 150,000 24.5 36,750
400,001 - 600,000 On the First 400,000 83,650
Next 200,000 25 50,000
600,001 - 1,000,000 On the First 600,000 133,650
Next 400,000 26 104,000
Exceeding 1,000,000 On the First 1,000,000 237,650
Next 1,000,000 28 ……………

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 Tax Rates:
INDIVIDUAL

Question 1:
If Gandaff (Non-Resident in Malaysia) has a chargeable
income of RM 88,000 ?

Income Tax Payable RM

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 Tax Rates:
INDIVIDUAL

Question 2:
If Gandaff (Malaysia Resident) has a chargeable
income of RM 88,000?

Income Tax Payable RM

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 Tax Rates: COMPANIES
YA 2020
First
Resident Company RM 600,000 Subsequent

Paid-up Ordinary Share Capital (at beginning of YA)

RM 2,500,000 or less , & annual 17% 24%
sales ≤ RM50 million
More than RM 2,500,000 24%

Non Resident Company  24%

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 PLEASE USE
THIS RATE!

YA 2019 Tax Rates: COMPANIES

First
Resident Company RM 500,000 Subsequent

Paid-up Ordinary Share Capital (at beginning of YA)

RM 2,500,000 or less 17% 24%

More than RM 2,500,000 24%

Non Resident Company  24%

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 Tax Rates: COMPANIES
Question 3:
Home Sdn Bhd (HSB) is a non-resident company. The company’s
principal activity is trading and manufactures foods and beverage in
local market. HSB closes its accounts to 31 July annually. During the
year, the company’s ordinary paid up capital has been increased from
RM 2 million to RM 2.7 million. The chargeable income for YA 2019=
RM 650,000.

Income Tax Payable RM

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 Tax Rates: COMPANIES

Question 4:
Home Sdn Bhd (HSB) is a locally incorporated resident company. The
company’s principal activity is trading and manufactures foods and
beverage in local market. HSB closes its accounts to 31 July annually.
During the year, the company’s ordinary paid up capital has been
increased from RM 2 million to RM 2.7 million. The chargeable
income for YA 2019 = RM 650,000.

Income Tax Payable RM

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 Learning Outcomes

After studying this topic, you should be able to:

 List the types of taxes (direct and indirect) in
Malaysia
 Explain the scope of charge of Malaysian tax
 Give examples of chargeable person
 Identify classes of income chargeable to tax under
different sections of the Act
 Apply the rates of tax on chargeable income
 Determine the basis year, basis period and year of
assessment

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