Governing income taxation


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Every country has a different ways to obtain their income to run a public, service such as public transport, hospitals, etc. The law in Malaysia, they are governing income taxation by the Income Tax Act 1967 (Act 53/ 1967). In Malaysia, there are two important agencies that collect income tax which is Inland Revenue Board and The Royal Customs. Moreover, Malaysia taxation may be classified into categories which are namely direct tax and indirect tax. Direct tax can be classified such as income tax, real property gains tax, stamp duty etc. besides that, indirect tax can be classified in service tax, sales tax, customs duty etc. we will discuss Malaysian Tax Environment.

Malaysian Tax environment

Malaysian tax environment is about a person that chargeable to pay tax. We able to know the scope of charge, and the source of income that a person has to pay tax. The act does not define an 'income' but merely categories the income under section 4 and section 4A.

Section 3 of the Act provides:

'' subject to and in accordance with this Act, a tax to be known as income tax shall be charged for each year assessment upon the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia."

Thus, with the Act has provided by the Income Tax Act 1967, a transaction must fall within the ambit of scope of charge to be liable to income tax.

Scope of charge

Income tax shall be charged for each year assessment upon the income of any person that chargeable to pay tax. Under section 3, there are two conditions that income tax liability arises which are:

The income of any person accruing in or derived from Malaysia

This is mean any income will be subject to Malaysia tax if the source of income is in Malaysia either the source are located in Malaysia

The income of any person from outside Malaysia ( foreign source income)

In this source of income, under the Income Tax Act 1967, a foreign source of income would not be subject or charged to Malaysian tax, unless that foreign income has been remitted to Malaysia and received by a resident individual (with effective from year of assessment 2004, such income is exempt from tax)

This section empowers the Directors General to charge tax upon the income received from various sources.

However, there is income tax that is not charged in respect of :

      Any offshore company that carrying on an offshore business activity in or from Labuan with effect from year assessment 1991
  1. Any income received by a Malaysian resident company from outside Malaysia (with effect from year assessment in 1995). Exempt dividend can be distributed from such foreign income, which is received in Malaysia by a resident company. However, where a person is not a resident for a basis year of assessment, income arising from sources outside Malaysia and received in Malaysia will be exempted from income tax.
Source of income

Under the section 4 of the Income Tax Act 1967, has listed down the classes of income upon which tax is chargeable in respects of:

    Section 4 (a) Gains or profits from a business, for whatever period of time carried on

    Section 4 (b) Gains or profits from an employment

    Section 4 (c) Dividends, interest or discounts

    Section 4 (d) Rents, royalties or premiums

    Section 4 (e) Pensions, annuities or other periodical payments not falling under any of the foregoing paragraphs

    Section 4 (f) Gains or profits not falling under any of the foregoing paragraphs

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