CHAPTER 1:

INTRODUCTION TO
MALAYSIAN TAXATION
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LEARNING OBJECTIVE
Explain the definition of taxation
Understand history and background of
taxation
Sources of Malaysian Taxation Law
Identify types of taxes
Tax Avoidance and Tax Evasion
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DEFINITION OF TAXATION
Oxford dictionary:
Contribution levied on persons, property, or business for the
support of govt.

Law cases:
A compulsory exaction of money by a public authority for public
purposes enforceable by law (Matthews v The Chicory
Marketing Board, 1938).
Raising money for the purposes of govt by means of
contributions from individual persons (R v Barger, 1908)

IRB Tax guide
Is an amount of money which is taken from your earnings to
help towards some of the cost of services we received in this
country


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BACKGROUND OF TAXATION
Income Tax Ordinance 1947 with effect from 1
January 1948

Replaced by Income Tax Act 1967 with effect
from 1 January 1968


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SOURCES OF MALAYSIAN TAXATION
LAW
There are 3 sources of revenue law in the Malaysian
context and they are:
Statute law (referred to as the legislation
Case Law (judge made laws)
Practice of the Malaysian Inland Revenue Board (IRB)

Implementation of Tax Laws:
IRB is responsible for all policies relating to direct taxes and
administer which are Income Tax, Petroleum Income Tax,
Real Property Gains Tax and Stamp Duty.

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CHARACTERISTICS OF TAXATION
Compulsory payment
Raised for government purposes
The exactions do not constitute payment for
services rendered
The payments are not penalties
The exactions are not arbitrary
Enforced under any written law
The exactions should not be incontestable
No specific right is transferred

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PURPOSE OF TAXATION
Revenue
Ensuring stable growth in revenue to finance the annual
budget

Growth
Providing incentives within the tax system to promote
growth, especially in the private sector


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TYPES OF TAXES IN MALAYSIA
Direct taxes
Paid directly by those on whom it is levied.
Example of direct tax : Income Tax, RPGT, Stamp Duty and
Petroleum Income Tax.

Indirect taxes
Collected via third party.
Example of indirect tax : Sales Tax, Service Tax and GST.

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CHARACTERISTIC OF INCOME
Regularity
Income distinguished from saving
Income must be received
Customary receipts are income
Illegality is of no relevance to assess ability
Speculation is not income
Reward for services
Gift is not an income

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CLASS OF INCOME
Section 4 of ITA 1967
Sec 4(a): gain or profit from a business
Sec 4(b): gain or profit from employment
Sec 4(c): dividends, interest or discounts
Sec 4(d): rents, royalties or premium
Sec 4(e): Pension, annuities or other periodical payments
Sec 4(f): gain or profits

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CHARGEABLE INCOME
Gross Income
Adjusted Income
Statutory Income
Aggregate Income
Total Income
Sec 5 of ITA 1967
Chargeable
Income
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TAX RATES

Resident individual tax rates (pg 17-18)

Tax Rebates (pg 19)

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TAX AVOIDANCE AND TAX EVASION
Tax avoidance are supported by commercial
substance, motivated by commercial viability and
most importantly are within the jurisdiction of the
Act.

Tax evasion on the other hand involves the
employment of artificial or fictitious transactions
such as inflating the expenses claimed, putting in
phantom employees for salary deductions, under
reporting cash sales with the sole intention to pay
less tax.

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THANK YOU

Q & A
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