Comparison of Income Tax Structure

Country Perspective: Bangladesh & Malaysia

Table of Content
Name

Chapter I

Chapter II

Page No.
Acknowledgement

Executive Summary

Introduction

Significance of the Study

Objective of the Study

Scope of the Study

Country Perspective: Bangladesh

10

Income Tax Authorities

10

Sources of Income

11

Tax rates

12

Tax rebate of investment

13

Time to submit income tax return

14

Tax treaties

16

Country Perspective: Malaysia

Income Tax Authority

19

Tax rates

20

Income tax rebates

26

Who should submit income tax return

29

Taxable Period

32

Chapter III

Tax treaties

34

Conclusion

35

Reference

36

EXECUTIVE SUMMARY

Taxation- one of the major sources of public revenue to meet a country's revenue and
development expenditures with a view to accomplishing some economic and social
objectives, such as redistribution of income, price stabilization and discouraging
harmful consumption. It supplements other sources of public finance such as issuance
of currency notes and coins, charging for public goods and services and borrowings.
As our country perspectives are Bangladesh & Malaysia, the tax structure in both the
country consists of both direct (income tax, gift tax, land development tax, non-judicial
stamp, registration, immovable property tax, etc) and indirect (customs duty, excise
duty, motor vehicle tax, narcotics and liquor duty, VAT, SD, foreign travel tax, TT,
electricity duty, advertisement tax, etc) taxes. Our study suggests that as the stated
countries once were the colonies of British Raj, both countries inherited British
Taxation culture in its income tax structure. Our study is based on some factors of
income tax which actually a matter of comparison between two countries. These are
Income tax authorities, sources of income, tax rates, tax rebate for investment, time to
submit income tax return, tax treaties among countries etc.

CHAPTER 1
INTRODUCTION

The term Tax has been derived from the French word Taxe and etymologically, the
Latin word Taxare is related to the term 'tax', which means 'tocharge'. Tax is 'a
contribution exacted by the state'. It is a non-penal but compulsory and unrequited
transfer of resources from the private to the public sector, levied based on
predetermined criteria.
According to Article 152(1) of the Constitution of Bangladesh, taxation includes the
imposition of any tax, rate, duty or impost, whether general, local or special, and tax
shall be construed accordingly. Rate is a local tax imposed by local government on its
residents or the property owners of the locality, a duty is a tax levied on a commodity,
and an impost is a tax imposed for an entry into a country. Under the provision of
article 83 of the Constitution, "no tax shall be levied or collected except by or under
the authority of an Act of Parliament" Bangladesh inherited a system of taxation from
its past British and Pakistani rulers. The system, however, developed based on
generally accepted canons and there had been efforts towards rationalizing the tax
administration for optimizing revenue collection, reducing tax evasion and preventing
revenue leakage through system loss. Taxes include narcotics duty, land revenue, nonjudicial stamp, registration fee and motor vehicle tax.

Significance of the study

It is envisaged that the study will find a causal comparison between Bangladesh &
Malaysian Tax Structure. The study will show us how taxation will help both countries
4

economic development and demonstrate the effectiveness of tax governance lead to a

greater citizen satisfaction. The study will also show how to integrate some technical
glitch of tax imposition on the citizens of both countries.

Objective of the study

The overall objective of the study is to examine the comparison of taxation system of
Bangladesh & Malaysia.
a) To identify the income tax authorities,
b) To determine the citizens sources of income
c) To examine and assess the income tax rate of Bangladesh & Malaysia
d) To examine the issues need to address to increase access to economic
opportunities and formal inputs which promote better tax governance
e) To review the tax treaties of the countries and does it really helping the economy
f) To provide strategic directions on how to improve tax policies in Bangladesh &
Malaysia.

Scope of the study

The study makes an attempt to project a broad view of the status of the existing income
tax authorities, sources income, tax rate, taxation policies, tax governance, tax treaties
in Bangladesh& Malaysia. Some important factors such as personal, social,
5

psychological and economic-factors have been examined in order to understand

whether these facilitate or constrain the overall tax policies.
The scope of the study was mainly to adjudge and examine the key issues involved in
better income tax policies in Bangladesh & Malaysia while emphasizing and
addressing the problems of these systems and solution through technology.

CHAPTER 2

Among direct taxes, income tax is one of the main sources of revenue. It is a
progressive tax system. Income tax is imposed on the basis of ability to pay. The more
a taxpayer earns the more he should pay- is the basic principle of charging income
tax. It aims at ensuring equity and social justice.
Our Comparison is based on the following factors
1.
Income Tax Authorities
2.
Sources of Income
3.
Tax Rates
4.
Tax Rebate for Investment
5.
Time to submit income tax return
6.
Tax treaties

Country Perspective: Bangladesh

1. Income Tax Authorities:

National Board of Revenue
Chief commissioner of taxes
Directors General of Inspection (Taxes),
Commissioner of Taxes (Appeals),
Commissioner of Taxes (LTU)
Director General (Training),
Director General Central Intelligence Cell (CIC),
Commissioners of Taxes,
Additional Commissioners of Taxes (Appeal/Inspecting),
Joint Commissioners of Taxes(Appeal/Inspecting),
Deputy Commissioners of Taxes,
Tax recovery officers,
Assistant Commissioners of Taxes,
Extra Assistant Commissioners of Taxes
Inspectors of Taxes.

2. Sources of Income:
For the purpose of computation of total income and charging tax thereon, sources of
income can be classified into 7 categories, which are as follows:
Salaries
Interest on securities
Income from house property
Income from agriculture
Income from business or profession
Capital gains
Income from other sources.

3. Tax Rates
A. Other than Company:
For individuals other than female taxpayers, senior taxpayers of 65 years and above
and retarded taxpayers, tax payable for the
8

First 2,20,000/- Nil

Next 3,00,000/- 10%
Next 4,00,000/- 15%
Next 3,00,000/- 20%
Rest Amount 25%
B. For Female Tax payers
First 2,75,000/- Nil
Next 3,00,000/- 10%
Next 4,00,000/- 15%
Next 3,00,000/- 20%
Rest Amount 25%
For retarded taxpayers threshold limit is TK.3,00,000
Minimum tax for any individual assessee located in City Corporation area is Tk. 3,000
Minimum tax for any individual assessee located in District headquarter is Tk. 2,000
Minimum tax for any individual assessee located in any other area is Tk.1,000
Non-resident Individual 25%
(other than non-resident Bangladeshi)
C. For Companies
Publicly Traded Company 27.5%
Non-publicly Traded Company 37.5%
Bank, Insurance & Financial Company (Except merchant bank) 42.5%
Merchant bank 37.5%
Cigarette manufacturing company 45%
Publicly traded cigarette company 40%
Mobile Phone Operator Company 45%
Publicly traded mobile company 40%
If any publicly traded company declares more than 20% dividend, tax rate would be
24.75% and if declares less than 10% dividend tax rate would be 37.5%.
If any non publicly traded company transfers minimum of 20% shares of its paid-up
capital through IPO(Initial Public Offering) it would get 10% rebate on total tax in the
year of transfer.
9

4.Tax Rebate for investment :

A. Rate of Rebate:
Amount of allowable investment is actual investment or 30% of total income or Tk.
150,00,000/- whichever is less.Tax rebate amounts to 15% of allowable investment.
B. Types of investment qualified for the tax rebate are :i. Life insurance premium up to 10% of the face value. Contribution to Provident Fund
to which Provident Fund Act, 1925 applies. Self-contribution and employers
contribution to Recognized Provident Fund. Contribution to Supper Annuation Fund.
Contribution up to TK 60,000 to deposit pension scheme sponsored by any scheduled
bank or a financial institution. Investment in mutual funds approved debenture or
debenture stock, Stocks or Shares
ii. Contribution to Benevolent Fund and Group Insurance premium
iii. Contribution to Zakat Fund
iv. Donation to charitable hospital approved by National Board of Revenue
iv. Donation to philanthropic or educational institution approved by the Government
v. Donation to socioeconomic or cultural development institution established in
Bangladesh by Aga Khan
vi. Development Network
vii. Donation to ICDDRB,
viii. Donation to philanthropic institution-CRP, Savar, Dhaka
ix. Donation up to five lac to
(1) Shishu Swasthya Foundation Hospital Mirpur, Shishu Hospital, Jessore and
Hospital for Sick Children, Sathkhira run by shishu swasthya Foundation, Dhaka.
(2) Diganta Memorial cancer Hospital, Dhaka,
(3)
x. The ENT and Head-Neck cancer Foundation of Bangladesh, Dhaka and
(4) Jatiya partibandhi Unnayan
xi. Foundation, Mirpur, Dhaka;
xii. Donation to Asiatic society of Bangladesh
xiii.. Donation to Muktijudha Jadughar
xiv. Donation to National level institution set up in memory of liberation war;
xv. Donation to National level institution set up in memory of Father of the Nation
xvi. Any investment by an individual in Bangladesh Government Treasury Bond;
xvii. Investment in purchase of one computer or one laptop by an individual assessee.
Who should submit Income Tax Return?

10

i.

ii.
iii.

If total income of any individual other than female taxpayers, senior male
taxpayers of 65 years and above and retarded taxpayers during the income
year exceeds Tk 2,20,000/-.If total income of any female taxpayer, senior
male taxpayer of 65 years and above during the income year exceeds Tk
2,75,000/-.
If total income of any retarded taxpayer during the income year exceeds TK.
3,00,000.
If any person was assessed for tax during any of the 3 years immediately
preceding the income year. A person who lives in any city
corporation/paurashava/divisional HQ/district HQ and owns a building of
more than one storey and having plinth area exceeding 1,600 sq. feet/owns
motor car/owns membership of a club registered under VAT Law.

iv.
v.

If any person subscribes a telephone.

If any person runs a business or profession having trade license and operates
a bank account.
vi.
Any professional registered as a doctor, lawyer, income tax practitioner,
Chartered Accountant, Cost& Management Accountant, Engineer, Architect
and Surveyor etc. Member of a Chamber of Commerce and Industries or a
trade Association.
vii. Any person who participates in a tender.
viii. A person who has a Taxpayer's Identification Number (TIN) in accordance
with the provision of section 184A.
ix.
Candidate for Union Parishad, Paurashava, City Corporation or Parliament
elections.
x.
Any company registered under the Company Act, 1913 or 1994.
xi.
Any Non-government organization (NGO) registered with NGO Affairs
Bureau.
5. Time to Submit Income Tax Return:
For Company
By fifteenth day of July next following the income year or, where the fifteenth day of
July falls before the expiry of six months from the end of the income year, before the
expiry of such six months.
For Other than Company
Unless the date is extended, by the Thirtieth day of September next following the
income year.
Consequences of Non-Submission of Return and Return of withholding tax.

11

Imposition of penalty amounting to 10% of tax on last assessed income subject to a

minimum of Tk. 1,000/-. In case of a continuing default a further penalty of Tk. 50/for every day of delay.
Consequences of using fake TIN
DCT can impose a penalty not exceeding TK.20,000/-. For continuous use of fake TIN
deliberately- 3 years imprisonment, up to TK. 50,000/- fine or both.
Assessment Procedures:
For a return submitted under normal scheme, assessment is made after giving an
opportunity of hearing.
For returns submitted under Universal Self Assessment Scheme, the acknowledgement
slip is determined to be an assessment order. Universal Self Assessment is of course
subject to audit.

Appeal against the order of DCT:

A taxpayer can file an appeal against DCT's order to the Commissioner
(Appeals)/Additional or Joint Commissioner of Taxes (Appeals) and to the Taxes
Appellate Tribunal against an Appeal order.
Tax withholding functions:
In Bangladesh withholding taxes are usually termed as Tax deduction and collected at
source. Under this system both private and public limited companies or any other
organization specified by law are legally authorized and bound to withhold taxes at
some point of making payment and deposit the same to the Government Exchequer.
The taxpayer receives a certificate from the withholding authority and gets credits of
tax against assessed tax on the basis of such certificate

12

6. NAME OF the tax treaties countries

1. UK.
2. SINGAPORE.
3. SWEDEN.
4. RP Korea
5. CANADA
6. PAKISTAN
7. ROMANIA
8. SRI LANKA
9. FRANCE
10. MALAYSIA.
11. JAPAN
12. INDIA
13. GERMANY
14. THE NETHERLANDS
15. ITALI
16. DENMARK
17. CHINA
18. BELGIUM
19. THAILAND
20. POLAND

a. Inland
Revenue Board
of Malaysia
(IRBM) and
Royal
Malaysian
Customs.
b. Link to Inland
Revenue Board
Malaysia.
c. Link to Royal
Malaysian
Customs.
Tax Audit Activity

Audit
cases canon
be selected
based
a number
of factors,for
such
as: Transport
Agreement
Avoidance
of onDouble
Taxation
Air
concluded
ratification under process with the following countries:
Risk
analysisand
criteria
1.
2.
3.

Oman.
Information
received from a third party
Industry
Type
Saudi Arabia.
A specific issue concerning a certain group of taxpayers
United Arab Emirates.
Location
Negotiation concluded with following countries on Avoidance of
There are two types of audit a desk audit which is carried out at the IRBMs office, and a
Double Taxation Agreement (comprehensive) and ratification under
field audit which is carried out at the taxpayers business premise.
process:
A typical tax audit commences with a letter of notification of an audit, which will indicate the
1. Egypt:
Negotiation
completed.
records
that should
be made
available Ratification
for audit, theunder
yearsprocess.
of assessment to be audited and the
names
of the relevant
audit officers.
This Bangladesh
is followed byside
an examination
of the relevant
2. Indonesia:
Ratification
from
is completed.
documents.
IRBM will side
thenisissue
an audit findings report, which will contain details of
RatificationThe
of Indonesian
awaited.
any proposed tax adjustments and the rationale for those adjustments. If the taxpayer
3. Iran:
Negotiation
completed
but some
unresolved
are trying
to are no
disagrees
with
the adjustments,
an official
objection
must issues
be submitted.
If there
settle through
letter
correspondence.
objections
to the
adjustments
made, the IRBM will issue a notice of additional assessment.
4. timeframe
Mauritius:
final agreement
(printed
in treaty
paper) from
is sent
the
The
for The
settlement
of a tax audit
should
be 3 months
thetocommencement
of
Ministry
of Foreign
the
audit, but
can takeAffairs
longerfor
to formal
reach a signature.
resolution in more complex cases.
Key
areas
for the IRBM
in tax audits
conducted
in process.
recent years have included:
5. focus
Nepal:
Negotiation
completed.
Ratification
under
Transfer pricing
6. Norway: Ratification from Bangladesh side is completed. Ratification
of Norwegian side is awaited.
Appeal
7. Philippines: Our Cabinet has approved, we are now waiting for
fulfillment of instrument of ratification of13
Philippines.
8. Qatar: Ministry of Law, Dhaka has made some changes in initialed
agreement. We have sent agreement with changes to Qatar authority for
their acceptance.

A taxpayer can appeal against an assessment as a result of a tax audit. The appeal must be
made within 30 days after the service of the notice of additional assessment.

2. Tax Rates
A. Personal Income TAX
Source of TAX
Section 4, Income Tax Act 1967 (ITA 1967), classifies income that is subject to tax into
main classes as follows:
i. Gains or profits from a business, for whatever period of time carried on;
ii. Gains or profits from an employment;
iii. Dividends, interest or discounts;
iv. Rents, royalties or premiums;
v. Pensions, annuities or other periodical payments not falling under any of the
foregoing paragraphs;
vi. Gains or profits not falling under any of the foregoing paragraphs.
In addition, under section 4A, ITA 1967, the special classes of income derived from
Malaysia of a non-resident individual are subject to tax in respect of the following:
i. Amounts paid in consideration of services rendered by the person or his employee in
connection with the use of property or rights belonging to, or the installation or
operation of any plant, machinery or other apparatus purchased from, such person.
ii. Amounts paid in consideration of technical advice, assistance or services rendered in
connection with technical management or administration of any scientific, industrial or
commercial undertaking, venture, project or scheme;
iii. Rent or other payments made under any agreement or arrangement for the use of
any moveable property.

2014 Income Tax Rates for

Residents
Taxable Income Band RM

National Income Tax Rates

0 - 5,000

RM 0 plus 0%

5,001 10,000
10,001 20,000

RM 0 plus 2%
RM 100 plus 2%
14

20,001 35,000
35,001 50,000
50,001 70,000
70,001 100,000
100,001 and above

RM 200 plus 6%
RM 900 plus 11%
RM 1,650 plus 19%
RM 3,800 plus 24%
RM7,200 plus 26%

Non-residents are subject to withholding taxes on certain types of income. Other

income is taxed at a rate of 26%.
If a Malaysian or foreign national knowledge worker resides in the Iskandar
Development Region and is employed in certain qualifying activities by a designated
company and if their employment commences on or after 24 October 2009 but not
later than 31 December 2015, the worker may apply to be subject to tax at a reduced
rate of 15%. The individual must not have derived any employment income in
Malaysia for at least 3 years before the date of the application.
Effective from the 2012 year of assessment, Malaysian professionals returning from
abroad to work in Malaysia would be taxed at a rate of 15% for the first 5 consecutive
years following the professionals return to Malaysia under the Returning Expert
Program (REP).

B. Corporate Income Tax

Tax Rate
Corporate tax rates for companies resident in Malaysia:
25 percent (24 percent from YA 2016)
Special tax rates for companies resident in Malaysia with ordinary paid-up share
capital of MYR 2.5 million and below at the beginning of the basis period for a year of
assessment (provided not more than 50 percent of the ordinary paid-up share capital of
the company is directly or indirectly owned by (or linked to) a related company which
has an ordinary paid-up share capital of more than MYR 2.5 million at the beginning
of the basis period for a year of assessment):
20 percent on the first MYR 500,000 (19 percent from YA 2016)
25 percent on every ringgit exceeding MYR 500,000 (24 percent from YA 2016)
Residence
15

A company will be a Malaysian tax resident if at any time during the basis year, the
management and control of the companys business or any one of its businesses are
exercised in Malaysia.
Compliance Requirements
Assessment system Self assessment
Estimate of tax payable must be made 1 month before the commencement of
a year of assessment
Monthly installments must be paid based on the estimate of tax payable
Filing due date 7 months from the date following the close of the
accounting period
International withholding tax rates
Dividends paid to non-residents are not subject to withholding tax.
Royalties paid/credited to non-residents are subject to withholding tax at 10 percent. The
rate may be lowered by the relevant Double Taxation Agreement (DTA).
Interest paid/credited to non-residents is subject to withholding tax at 15 percent. The rate
may be lowered by the relevant DTA.

Holding Rules
There are currently transitional rules in place prior to the full implementation of the
single tier dividend system, which is to have full effect from January 1, 2014. The
transitional rules affect franked dividends paid by a resident company to its
shareholders. The dividends will be regarded as franked dividends provided:
They are paid in cash on ordinary shares; and
The ordinary shares have been held continuously for 90 days or more (this condition
does not apply to dividends paid by publicly listed companies)
There is no capital gains tax in Malaysia. However, there is real property gains tax
(RPGT).
RPGT is levied on the disposal of realproperty situated in Malaysia as well as the
disposal of shares in a Real Property Company (RPC). An RPC is a controlled
company which owns real property or shares or both in another RPC, which have a
defined value of not less than 75 percent of the value of its total tangible assets.

16

Tax Losses
Current period offset business losses may be set off against income from other
sources for that year. Tax losses may be carried forward indefinitely to set off against
future business income only, unless the company is dormant and does not satisfy the
continuity of ownership test.
Tax Consolidation
There are no consolidation provisions in Malaysia. However, resident companies
within a 70 percent owned group can surrender up to 70 percent of their current year's
adjusted business losses to other related resident companies, provided certain
conditions are met.
Transfer of Shares
Stamp duty of 0.3 percent (of the price or value of the shares, whichever is higher) is
payable on the transfer of shares

Transfer of Assets
On the transfer of land and buildings, ad valorem stamp duty at rates from 1 to 3
percent on the transfer consideration or the market value of the property, whichever is
higher, is payable.
CFC Rules
There is no CFC regime in Malaysia.
Transfer Pricing
Malaysias transfer pricing regime is largely based on OECD guidelines. Documents
pertaining to transfer pricing do not need to be submitted with a taxpayers annual
income tax return, but they should be made available to the tax authority upon request.
17

Thin Capitalization
Malaysia has thin capitalization legislation. However, the implementation of the
regime has been deferred to the end of December 2015.
General Anti-Avoidance
There are general anti-avoidance rules in Malaysia which allow the tax authority to
disregard, vary or make any adjustment deemed fit, if there is reason to believe that
any transaction has the effect of evading, avoiding or altering the incidence of tax.
Special Tax Regimes for Specific Industry or sectors
Foreign-sourced income received in Malaysia by a resident company (other than a
resident company carrying on the business of banking, insurance, shipping, or air
transport) is exempt from tax.
C. Indirect Tax
Service tax is chargeable on the value of taxable services provided by a taxable person.
Examples of taxable services include; operators of hotels, operators of restaurants, bars
and coffee houses, insurance companies, telecommunication companies, consultants
and professional firms. There is a limited exemption for services provided within a
group.
Sales tax is a form of consumption tax levied on taxable goods manufactured in
Malaysia or imported into Malaysia for local consumption. Exports are exempt.
Standard Rate
Service Tax: 6 percent
Sales Tax: Generally 5 percent or 10 percent
GST Reforms
Goods and services tax (GST) is to be introduced in Malaysia from 1 April 2015, and
will replace the existing sales and service taxes.
The standard rate of GST will be 6 percent, although some supplies will be zero-rated
or exempt.
Businesses with an annual taxable sales value of MYR 500,000 and above will be
required to register for GST purposes. Businesses below the threshold may register on
a voluntary basis.
D. Other Tax
18

Property Tax
Local councils may impose a levy rate (commonly known as land tax) on residents in
respect of services provided by the local council. The amount varies from council to
council and is dependent on the value of the property.
Quit rent is a form of tax imposed by the State Government. It is imposed on owners of
landed property (as opposed to units in high-rise building). The amount of quit rent
imposed varies from state to state and will depend on the locality and category of land
use.
Import Duty
Import duty is generally payable on imported goods at the time of clearance from
Customs control. The rates of import duty generally ranges from 0 percent to 60
percent depending on the category of goods imported.
Malaysia is committed to ASEAN and as such, import duties imposed on most
manufactured goods of ASEAN origin have been reduced to a range of 0 percent to 5
percent.
Export Duty
Export duty is generally imposed on delectable resources to discourage export of such
commodities.
Excise Duty
Excise duty is a domestic tax imposed on a limited range of locally manufactured
goods or goods imported into Malaysia. The rate of tax to be levied varies and would
depend on the nature of the goods manufactured or imported. Excise duty is generally
levied on alcoholic beverages, tobacco products and motor vehicles.
Inheritance or Gift Tax
There is no inheritance or gift tax in Malaysia.
3. Income Tax Rebate
Investment tax allowances are a means of effecting a substantial artificial reduction in
taxable profits. In Malaysia there is a very wide variety of investment tax allowances.
Broadly speaking, they are an alternative to Pioneer Status, but they are in addition to
19

the right of every company to depreciate assets over their useful lives and set the
depreciation off against taxable profits.
Investment tax allowances are transferred into an "exempt income account" where they
are exempt from corporate income tax.
Dividends paid to shareholders out of the "exempt income account" are free of
withholding taxes on distribution. Dividends from the "exempt income account" paid
to a parent corporation which in turn distributes them to its shareholders are also free
of withholding taxes.
Some of the main types of investment tax allowances (ITA) are as follows:

Manufacturing Companies. A company granted ITA gets an allowance of 60%

(at the time of writing) of qualifying capital expenditure (such as factory, plant,
machinery or other equipment used for the approved project) incurred within five
years from the date on which the first qualifying capital expenditure is incurred.
Companies can offset this allowance against 70% of their statutory income for each
year of assessment. Any unutilized allowance can be carried forward to subsequent
years until fully utilized. The remaining 30% of statutory income will be taxed at the
prevailing company tax rate.
To encourage investment in the promoted areas i.e. the States of Sabah and Sarawak
and the designated "Eastern Corridor" of Peninsular Malaysia, applications received
from 13 September 2003 from companies located in these areas receive an
allowance of 100% on the qualifying capital expenditure incurred within a period of
five years. The allowance can be utilized to offset against 100% of the statutory
income for each year of assessment. Companies which have been granted approval
for this incentive but have not commenced commercial production, or applications
under consideration, are also eligible. All project applications received by December
31, 2010 are eligible for this enhanced incentive.
Applications received from September 13, 2003, from existing locally-owned
companies that reinvest in the production of heavy machinery such as cranes, quarry
machinery, batching plant and port material handling equipment, were eligible for
Investment Tax Allowance of 60% (100% for promoted areas) on the additional
qualifying capital expenditure incurred within a period of five years. The allowance
can be offset against 70% (100% for promoted areas) of the statutory income for
each year of assessment.

20

High Technology Companies A high technology company is a company

engaged in defined activities or in the production of defined products in areas of
new and emerging technologies. A high technology company qualifies for
Investment Tax Allowance of 60% of qualifying capital expenditure incurred within
five years from the date the first capital expenditure is incurred. Any unutilized
allowance can be carried forward to subsequent years until the whole amount has
been fully utilized. The allowance can be utilized to offset against 100% of its
statutory income for each year of assessment. A Malaysian-owned company that
acquires a foreign-owned company abroad to acquire high technology for
production within the country or to gain new export markets for local products will
be granted an annual allowance of 20% of the acquisition cost for five years.

SMEs Effective from the year of assessment of 2009, small- and medium-scale
companies with paid-up capital of RM2.5 million and below are eligible for a
reduced corporate tax on chargeable income of up to RM500,000. The tax rate on
the remaining chargeable income is maintained at the normal rate. Dividends
distributed will be given a tax credit (20% at the time of writing) in the hands of the
shareholders. To qualify for the incentive, the small-scale company has to comply
with any one of the following criteria :

The companys finished products should be used as raw materials or

components by manufacturing industries;

The companys products shall substitute imports and the local material
content is more than 50% in terms of value;

The company exports at least 50% of its output; or

The project contributes towards the socio-economic development of the

rural population.
l expenditure incurred within five years from the date on which the first
qualifying capital expenditure was incurred.
Companies can offset this allowance against 70% of the statutory income in the year
of assessment. Any unutilized allowance can be carried forward to subsequent years
until the whole amount has been used up. The remaining 30% of the statutory
income will be taxed at the prevailing company tax rate.
As an added incentive, companies that locate in the States of Sabah, Sarawak, the
Federal Territory of Labuan and the designated Eastern Corridor of Peninsular
Malaysia get an allowance of 80% on qualifying capital expenditure incurred. The
allowance can be utilized to offset 85% of the statutory income in the year of
assessment. This additional incentive applies to all applications received by
December 31, 2010.

21

 R & D Expenditure An R&D company, i.e., a company that provides R&D

services in Malaysia to its related company or to any other company, is eligible
for an ITA of 100% on qualifying capital expenditure incurred within 10 years.
The allowance can be offset against 70% of the statutory income in the year of
assessment. Should the R&D company opt not to avail itself of the allowance,
its related companies can enjoy a double deduction for payments made to the
R&D company for services rendered. Contract R&D and R&D companies can
apply for the various incentives as long as they fulfill the following criteria:
Research undertaken should be in accordance with the needs of the
country and bring benefit to the economy
At least 70% of the income of the company should be derived from R&D
activities
For manufacturing-based R&D, at least 50% of the workforce of the
company must be appropriately qualified personnel performing research
and technical functions; and
For agriculture-base R&D, at least 5% of the workforce of the company
must be appropriately qualified personnel performing research and
technical functions
A company can enjoy double deduction on revenue (non-capital)
expenditure for research which is directly undertaken and approved by the
Minister of Finance. This double deduction applies to payment for the use
of services of approved research institutes, R&D companies or contract
R&D companies. It also applies to cash contributions to approved
research institutes.

4. Who Should Submit Income Tax Return?

Residents and non-residents are subject to tax on Malaysian-source income only.
Residence status for tax purposes
Individuals are considered resident in any of the following circumstances:
They are physically present in Malaysia for 182 days or more during the calendar
year.
They are physically present in Malaysia for less than 182 days during the calendar
year, but are physically present in Malaysia for at least 182 consecutive days in the
second half of the immediate preceding calendar year or in the first half of the
immediate following calendar year. Periods of temporary absence are considered part
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of a period of consecutive presence if the absence is related to the individuals service

in Malaysia, personal illness, illness of an immediate family member or social visits
not exceeding 14 days.
They are present in Malaysia during the calendar year for at least 90 days and have
been resident or present in Malaysia for at least 90 days in any 3 of the four preceding
years.
They have been resident for the 3 preceding calendar years and will be resident in the
following calendar year. This is the only case in which an individual may qualify as a
resident even though he or she is not physically present in Malaysia during a particular
calendar year.
For the purposes of determining residence, presence during part of a day is counted as
a whole day.
Income subject to tax
Employment income - Gross income from employment includes wages, salary,
remuneration, leave pay, fees, commissions, bonuses, gratuities, perquisites or
allowances (in money or otherwise) arising from employment.
An individual employed in Malaysia is subject to tax on income arising from Malaysia,
regardless of where the employment contract is signed or the remuneration is paid.
Gross income also includes income for any period of leave attributable to employment
in Malaysia and income for any period during which the employee performs duties
outside Malaysia incidental to the employment in Malaysia.
Employee benefits and amenities not convertible into money are included in
employment income.
Short-term visitors to Malaysia enjoy a tax exemption on income derived from
employment in Malaysia if their employment does not exceed any of the following
periods:
A period totaling 60 days in a calendar year
A continuous period or periods totaling 60 days spanning two calendar years
A continuous period spanning two calendar years, plus other periods in either of the
calendar years, totaling 60 days
Non-citizen individuals working in Operational Headquarters (OHQs), Regional
Offices, International Procurement Centres (IPCs) and Regional Distribution Centres
(RDCs) are taxed only on that portion of income attributable to the number of days that
they are in Malaysia.
Self-employment and business income - All profits accruing in Malaysia are subject
to tax.
Income from any business source is subject to tax. A business includes a profession, a
vocation or a trade, as well as any associated manufacture, venture or concern.
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Contract payments to non-resident contractors are subject to a total withholding tax of

13% (10% for tax payable by the no-resident contractor and 3% for tax payable by the
contractors employees).
Income derived in Malaysia by a non-resident public entertainer is subject to a final
withholding tax at a rate of 15%.
Individuals may carry forward business losses indefinitely.
Investment income - Interest income received by individuals from monies deposited
in approved institutions is exempt from tax.
Other interest, dividends, royalties and rental income are aggregated with other income
and taxed accordingly. Dividends received by individuals are exempt from tax,
effective from the 2008 year of assessment. Dividends distributed under the imputation
system continue to be taxable.
Certain types of income derived in Malaysia by non-residents are subject to final
withholding tax at the following rates:
Type of income
10%
Use of movable property
Technical advice, assistance or
services
Installation services on the
supply of plant, machinery and
similar assets
Personal services associated
with the use of intangible
property
Royalties for the use or
conveyance of intangible
property
Interest

10%
10%
10%
10%
15%

Directors fees - Directors fees are considered employment income; therefore, fees
derived from Malaysia are taxable. Fees are deemed to be derived from Malaysia if the
company is resident in Malaysia for the year of assessment. If the fees are derived
from a country other than Malaysia, they are not taxed.
Employer-provided stock options - Tax legislation governs the taxation of employerprovided stock options. Under the tax legislation, employer-provided stock options are
subject to tax as employment income. The taxable income is calculated based on the
difference between the fair market value of the underlying stock at the exercise date or
exercisable date, whichever is lower, and the strike price. This amount is recognised at
the time the option is exercised, and is taxed as current-year income.
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Capital gains
In general, capital gains are not taxable. However, gains derived from the disposal of
real property located in Malaysia and gains derived from the sale of shares in closely
controlled companies with substantial real property interests are subject to real
property gains tax (RPGT).
Capital gains derived from the disposal of chargeable assets by an individual between
1 January 2010 and 31 December 2010 within two and 5 years after the acquisition
date are taxed at effective rates of 10% and 5%, respectively.
Effective from 1 January 2013, capital gains derived from the disposal of chargeable
assets by an individual within two and 5 years after such date are taxed at effective
rates of 15% and 10%, respectively.
All disposals made after such 5-year period are exempt from RPGT.
Other taxes
Malaysia does not impose estate, gift or net worth taxes.
Social security
No social security tax is levied in Malaysia, but employees who are Malaysian citizens
are required to contribute to the Employees Provident Fund (EPF). The EPF is a
statutory savings scheme to provide for employees old-age retirement in Malaysia.
Under the Employees Provident Fund Act 1951, all employers and employees are
required to make monthly contributions to the EPF.
The statutory contribution rate is 23% or 24% of monthly wages. The employer pays at
rate of 12% if the employees monthly wages are above RM 5,000 per month or 13% if
the employees monthly wages are below RM 5,000 per month. The employee
contributes 11% of monthly wages.
Employees contributions are deducted at source. No ceiling applies to the amount of
wages subject to EPF contributions. Expatriates are not required to contribute to the
EPF, but may elect to contribute to take advantage of the available tax relief.
Self-employed persons may elect to contribute to the EPF. The individual may make
voluntary contributions at a fixed monthly rate of any amount from RM 50 to RM
5,000.
Tax filing and payment procedures
A self-assessment system of taxation for individuals is in effect in Malaysia. A notice
of assessment is deemed served on the submission of the tax return to the tax
authorities. An appeal must be filed within 30 days from the date of the deemed notice
of assessment (that is, within 30 days of the date of submission of the tax return).
Non-residents who are subject to final withholding taxes do not need to file tax returns
unless required to do so by the tax authorities.
An individual arriving in Malaysia who is subject to tax in the following year of
assessment must notify the tax authorities of chargeability within two months after
arrival.

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For employees, tax payment is made through mandatory monthly withholdings under
the Monthly Tax Deduction Scheme (MTDS). All employers must deduct tax from
cash remuneration, which includes wages, salaries, overtime payments, commissions,
tips, allowances, bonuses and gratuities, based on tax tables provided by the Inland
Revenue authorities and pay the amount of taxes withheld to the tax authorities within
10 days after the end of each month. Employers must withhold tax at a rate of 26%
from wages paid to non-resident employees.
5. Taxable Period
The Director General of Custom shall assign each taxable person to one of the
following categories for the purpose of determining their taxable period:i- Category A - the category of taxable persons whose taxable period is a period of one
month ending on the last day of any month of any calendar month;
ii- Category B - the category of taxable persons whose taxable period is a period of
three months ending on the last day of the month of any calendar year: or
iii- Category C - the category of taxable persons whose taxable period is a period of six
months ending on the last day of any month of any calendar year
It is indicated that category A is for a person with turnover in excess of RM5 million as
well as export-based entities whereas category B is for a person with turnover of less
than RM5million
Furnishing of Returns and Payment of Tax
Every taxable person shall furnish to the Director General of Custom a prescribed
return in the prescribed manner not later than the last day of the following month after
the end of the taxable period to which the return relates and every taxable person shall
keep the accounting records relating to GST in Bahasa Malaysia or English for a
period of seven years.
D- Customs Duty
Customs duty is a tax levied on imports by the customs authorities of a country to raise
state revenue, and/or to protect domestic industries from more efficient competitors
from abroad. In Malaysia, all goods dutiable on import are put through customs duty
according to Customs Duties Order, 1996. The types of duties are import duty, sales
tax, and export duty. The duty rates depend on the types of goods imported or
exported. Royal Customs and Excise gives concession in the tariff rates for a range of
goods along the lines of Malaysias dedication arising from the bilateral and
multilateral trade negotiations with other Association of South East Asian Nations
(ASEAN) members.
Many goods deriving from other ASEAN members are eligible for admission into
Malaysia at special rate of duty. Importers who wish to claim the special rate of duty
must submit at the time of lodging an import entry certificate of origin given by a
suitable authority of the exporting country.

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Goods imported for use as raw material in particular industries are exempt from
customs duty. A tourist may bring in personal goods in reasonable quantities without
paying duties subject to conditions. A Malaysian who has lived abroad or foreign
nationals who have been permitted to reside in Malaysia are allowed to import used
household belongings duty free, subject to conditions. Raw materials used directly in
the manufacture of approved products for export are exempt from customs duty,
including packaging materials and casings. Trafficking of illegal drugs is a grave
offence leading to death penalty. Items like 200 cigarettes, maximum 1 litre of
wine, cosmetics, perfumes, soaps amounting to maximum value of Ringgit Malaysia
(RM) 200, etc can be imported duty-free if the items are imported by the visitor on his
person or baggage or residents of Malaysia who have left the nation for more than 120
hours. All goods
from Israel and South Africa and any item having an imprint of any
currency note or bank note issued currently or at any time in any
nation are prohibited. Free export of tobacco products and alcoholic beverages in
reasonable quantities is allowed. Goods for export, whether dutiable
or otherwise, must be displayed at the place of export or another
place as decided by the Customs. Export goods can be declared by
the owner, exporter, consignor or an agent allowed by the owner or
exporter and approved by the Customs.
E- Local Tax
Local tax in Malaysia comes in the form of assessment tax. The assessment tax refers
to the property tax collected by the local authorities for the provision of the services to
the residents. Property or Assessment Tax also is levied on all property holdings,
including shops, factories, residential, agricultural and others, situated in the areas
under the jurisdiction of local authorities. The rates of the assessment tax collected are
different from one local government to another. Moreover it also differs in a form of
property rights. Whereas, the type of property categorized to residential, commercial
orindustrial.
For an example, the assessment tax rate fixed by Majlis Bandaraya Johor Bahru in the
state of Johore on residential type of property is 0.13% but at the same time they rate
of assessment tax for commercial type of property is 0.26%. In another hand, Majlis
Daerah Kulai set its assessment tax rate for the residential is 0.30% while the rate of
commercial type property is 0.45%. In most states, the amount of assessment tax is
calculated based on certain percentage of annual value of the property. The annual
value of a property is the total value of rents if the property is rented out in the open
market. In case of Johor, the calculation is based on the proportion of improvement in
the total value of tax paid.

7.

Tax Treaties Countries

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Tax treaties
Malaysia has entered into double tax treaties with 78 countries, some of which are not
yet in force at the time of writing.
Under the treaties, a foreign tax credit is available for the lesser of Malaysian tax
payable on the foreign income or the amount of foreign taxes paid. For non-treaty
countries, the foreign tax credit available is limited to one-half of the foreign tax paid.
Agreements with some countries provide for reduced withholding taxes under certain
conditions
Currently, Malaysia has entered into treaties to mitigate double taxation with 68
countries listed below:
Albania, Ireland, Qatar, Argentina, Italy, Romania, Australia, Japan, Russia, Austria,
Jordan, Saudi Arabia, Bahrain, Kazakhstan, Seychelles, Bangladesh, Korea, Singapore,
Belgium, Kuwait, South Africa, Brunei, Kyrgyz, Spain, Canada, Lebanon, Sri Lanka,
China, Luxembourg, Sudan, Chile, Malta, Sweden, Croatia, Mauritius, Switzerland,
Czech Republic, Mongolia, Syria, Denmark, Morocco, Thailand, Egypt, Myanmar,
Turkey, Fiji, Namibia, Turkmenistan, Finland, Netherlands, United Arab Emirates,
France, New Zealand, United Kingdom, Germany, Norway, United States of America,
Hungary, Pakistan, Uzbekistan, India, Papua New Guinea, Venezuela, Indonesia,
Philippines, Vietnam, Iran, Poland.

Conclusion:
In the previous chapter weve discussed the income tax structure of Bangladesh &
Malaysia. Though the rate of tax revenue is to GDP is very negligible, despite the
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government is trying to maximize its tax revenue through different method. But the
government should also remind the cannon of convenience while collecting tax from
assesses. As we are living in a civilized society - should come forward to pay taxes to
government in order to conduct the administrative, defense and development activities
of the country. Otherwise we would not be able to prove ourselves as civilized people.
Tax is the most important in the hand of the government to control the economy as
well as the inflection. It also helps in push money to the economy, develop certain
source of the economy and control some other activities of the economy. No
Government can run its and perform administration works without collecting tax as a
source of revenue. So, the Government imposes tax over the company and the
corporations. On the other hand Government can also intensive to the infant and
certain basic industry for protection through its tax policy.

References:
1.
Bangladesh Income Tax -Theory and Practice8th Edition
(Income tax, Value added tax, Gift tax)
Nikhil Chandra Shil, Mohammad Zakaria Masud, Mohammad Faridul
Alam
2.
Nationan Board of Revenue (NBR) website
http://www.nbr-bd.org
3.
http://www.financialinfobd.com/
4.
http://www.taxrates.cc
5 . T h r e e t a x e s o f B a n g l a d e s h .
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M. A. Akkas, M. com. MBA (AIT). (2003),(Income tax, value added tax,

gift Tax), pp, 6-9.
6. Inland Revenue Board of Malaysia Website
http://www.hasil.gov.my/

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