 Purpose of accounting is to provide the

information that is needed for sound

economic decision making
 Main purpose of financial accounting is to
prepare financial reports that provide
information about a firm's performance to
external parties such as investors, creditors,
and tax authorities
 The accounts – assets, liability, capital, income
and expenses recorded in individual ledger
recorded with debit and credit entries
 Ledger – a set of records for all business
transactions with debit and credit in separate
column
 Debit - accounting entry that either increases an
asset or expense account, or decreases a liability
or equity account
 Credit - accounting entry that either increases a
liability or equity account, or decreases an asset
or expense account
 Accounting period - is the period with reference to
which accounting books of any entity are
prepared. Generally consist of 12months
 Prepayment – early payment or settlement of
expenses
 Accrual – revenue earned not yet received or
expenses incurred not yet paid
 Journal voucher – A written authorisation prepared
for every adjustment on financial transactions
 Budget - quantitative expression of a plan for a
defined period of time
 Gearing - is a measure of a company's
financial leverage and shows the extent to
which its operations are funded by lenders
versus shareholders
 Audit trail - A record showing who has
accessed a computer system and what
operations he or she has performed during a
given period of time
 Reconciliation of accounts - refers to the
process of ensuring that two sets of records
are in agreement
 Sole-proprietorship
◦ Operated by individual for his or her own benefits
◦ The proprietor undertakes the risks of the business
to the extent of his/her assets
◦ Liabilities associated with the business are the
personal liabilities of the owner
◦ Financial activities of the business are maintained
separately from the person's personal financial
activities
◦ Start-up capital normally comes from business
operators himself or herself
 Advantages:
◦ Easy to setup as it is the most common type of
business organisation
◦ Lesser legal restriction
◦ Simple to operate as normally involved small
businesses and less complexity on decision making
process
 Disadvantages:
◦ Limited life of the business
◦ Unlimited liability
◦ Difficulty on raising capital fund for business
expansion
 Partnership is an agreement (expressed or
implied) between two or more persons who
join together to carry on a business venture
for profit
 Each partner contributes money, property,
labor, or skill; each shares in the profits and
losses of the business
 Each partner has unlimited personal liability
for the debts of the business
 Advantages:
◦ Greater accessibility to capital fund
◦ Greater resources for decision making & support
 Disadvantages:
◦ Unlimited liability for all partners
◦ Divided authority that could caused delay on
decision making
 Company is a legal entity, operating under state
law
 Shareholders’ are protected from liability
 Company can be public limited or private limited
 Public limited company is where the shares are
trades in stock market (Bursa Malaysia) where
investors are easily buy or sell the company’s
shares
 Private limited company is usually smaller size of
company where company’s shares are hold by
small number of shareholders
 Advantages:
◦ Shareholders’ liability is limited to amount invested
only
◦ Allow greatest flexibility for customizing the
structure of the business
 Disadvantages:
◦ Rules and regulations to comply
◦ Fulfill reporting requirements
◦ Complicated procedures to follow for setting up a
company
 Double entries bookkeeping
◦ every business entry requires both debit and credit
for 2 separate accounts in an equal amount
 Cash versus accrual
 Historical cost
 Profit versus cash
 Accounting for stock
 Also known as Income Statements
 A financial statement showing a company's net
profit or loss in a given period
 Revenue – Costs of Goods Sold = Gross Profit
 Gross profit – expenses = Net Profit
Sample of
Income
Statement
 Statement that shows the financial position of
the business
 A financial statement that summarizes a
company's assets, liabilities and shareholders'
equity at a specific point in time
 Non-current assets – assets which are
purchased for long-term use and are not likely
to be converted quickly into cash. Eg: land,
buildings, and equipment
 Current assets - cash and other assets that are
expected to be converted to cash within a year
 Current liabilities - debts or obligations that are
due within one year
 Long-term liabilities - liabilities with a future
benefit over one year, such as notes payable
that mature longer than one year
 Working capital - measure of both a company's
efficiency and its short-term financial health
 Net assets – Total assets minus Total liabilities
 Equity – is equal to net assets
Sample of
Balance
Sheet
 Statement that showing business cash movements
 It shows the net cash generated from operating
activities, investment activities and financing
activities
 Cash and cash equivalent are the most liquid
current assets found on a business
 An investment normally counts to be a cash
equivalent when it has a short maturity period of
90 days or even less from date of acquisition and
when it carries an insignifant risk of changes in
value
Sample of
Cash Flow
Statement
 Classification of financial ratios
◦ Profitability – provide insight to the degree of success in
achieving the financial performance
◦ Efficiency – measure the efficiency with which particular
resources have been used within the business.
◦ Liquidity – it is important for business to have sufficient
liquid resources available to meet maturing obligation in
the near future.
◦ Financial gearing – this refers to relationship between the
contribution to financing the business made by the
owners and the amount contributed in the form of loans.
◦ Investment – these ratios are concerning with assessing
the returns and performance of investments
 Only when we compare this ratio with some
“benchmark” that the information can be
interpreted and evaluated
◦ Past period
◦ Similar business
◦ Budget / forecast
 Gross profit margin

 Net profit margin

 Return On Capital Employed (ROCE)

 Inventory turnover ratio

 Debtors collection ratio

 Payable payment ratio

 Current ratio

 Quick ratio
 Dividend payout ratio

 Earning per share (EPS) ratio

 P/E ratio
 Gearing ratio

 Interest cover ratio

 External users
◦ Investors / shareholders
◦ Suppliers
◦ Customers
◦ Government agency
◦ Bankers / funders
 Internal users
◦ Management
◦ employees
 What is accounting equation?
◦ Fundamental of double entry accounting system
◦ Represent the relationship between assets,
liabilities and capital funds (Shareholders fund)
 In short, accounting equation is where:
◦ Assets = Capital (shareholders fund)+ Liabilities
 Assets are resources owned by business
 Liabilities are obligation of business to settle
in the future
 Capital are amount of investment from
business owner
 Examples:
Assets Capital Liabilities Possible reason
Increased No change Increased Purchase of assets by loan
Reduced No change Reduced Settlement of liabilities
Increased Increased No change Owner capital contribution
Reduced Reduced No change Capital withdrawal /
dividend payment made
 Every business transactions have two effects
 Bookkeeping attempts to record both effects
of a transaction or event on the entity's
financial statements
 Without applying double entry concept,
accounting records would only reflect a
partial view of the company's affairs
 the two effects of an accounting entry are
known as Debit (Dr) and Credit (Cr)
 Book of original entry are known as “journals”
or “day books”
 It is always use for first record transactions
 There are separate books for each kid of
transaction, namely:
◦ Sales day book
◦ Purchase day book
◦ Return inwards / outwards day book
◦ General journal
◦ Cash book
 Sales day book only use to capture credit sales as
cash sales will be capture directly in the cash
book
 An invoice will send to customers on each credit
sales and keep a copy for seller’s record
 Seller will use the copy of sales invoice (tax
invoice) to enter the transaction first in the sales
day book
 Information display on sales day books are date,
customers’ name, invoice number, folio column
and total amount
 Purchase day book only use to capture credit
purchase as cash purchase will be capture
directly in the cash book
 An invoice will received from suppliers on
each credit purchase
 Buyer will use the sales invoice (tax invoice)
received to enter the transaction first in the
purchase day book
 Information display on purchase day books
are date, suppliers’ name, invoice number,
folio column and total amount
 The general journal is usually the first of a
company's accounting records before the
double entry accounts
 Each journal transaction contain:
◦ Date
◦ Name of accounts to be debited or credited
◦ Description and explanation of transaction
(narrative)
◦ Folio reference to source documents
 Main use of the general journal are:
◦ Acquisition or disposal of fixed assets
◦ Writing off bad debts
◦ Correction or errors in ledger accounts
◦ Entering opening balances for new set of books
◦ Adjustments made to the entries in ledger

 However, the above are not a complete list on

the use of journal
 A journal where first recorded all cash receipts
and payments, for posting to general ledger
 2 column cash book is where both debit and
credit side with “cash” & “bank” column
 3 column cash book is where both debit and
credit side with “cash”, “bank” & “discount”
column
 Business will prepare bank reconciliation to check
bank balance in cash book against bank
statement balance
 The objective is to minimise error in bank
transactions and
 Sales ledger – this is for customers’
personal accounts
 Purchase ledger – this is for suppliers’
personal accounts
 General ledger – contains the
remaining double entry accounts
 This is for customers’ personal accounts
 Credit sales will be posted to the debit side of
each customer’s account in the Sales ledger,
one by one
 At the end of each period, total credit sales
will be posted to the credit side of sales
account in General Ledger
 This is for suppliers’ personal accounts
 Credit purchase will be posted to the credit
side of each supplier’s account in the
Purchase ledger, one by one
 At the end of each period, total credit
purchase will be posted to the debit side of
purchase account in General Ledger
 General ledger is a complete record of
financial transactions for a company
 Ledger hold all information needed for the
preparation of financial statements
 Some general ledger accounts are summary
records which are referred to as control
accounts
 Business transactions are kept in various
ledgers using double entries
 In a T-account ir show the balance of the item at
the start of the period (month or year) and at the
end of the period
 Debit and credit amount in the same account will
set-off against each other
 The balance amount in the T-account (ledger) is
the difference between this two sums
 At the end of the period, a brief calculation is
done to work out the closing balance of the
account
 Cash balance at bank and its cash balance according
to its accounting records usually do not match
 Reasons being:
◦ Outstanding cheques not clear
◦ Unpresented cheques
◦ Bank charges not recorded, etc
 Therefore needs to carry out bank reconciliation
process to find out the reasons of the difference
between bank account balance and bank statement
balance
 Is the process of totaling the debits and
credits in all ledger accounts
 It is the first step in the “end of accounting
period” process
 If double entries performed in ledger
accounts are done correctly, Trial Balance
should balance
 Therefore, one of the purpose of preparing
Trial Balance is to check mathematical
accuracy of accounting
 All ledger accounts are closed at the end of
accounting period
 ledger balances are post to Trial Balance
 Total both debit and credit columns. If not
balance, then create a suspense account to agree
the total
 Identify error(s) and rectified errors by posting
correct entries via general journal
 Any other adjustments required which are not
previously recorded in accounts
 Fixed assets such as machinery, motor
vehicles are assets used for more than a year
but not with forever
 Depreciation is an “expense” to match the
economic use of assets to generate business
income
 Why have to expense off the assets?
◦ Physical deterioration
◦ Economic useful life (as assets cannot use
forever!!!)
 Straight line method – cost is divided by the
estimated number of useful life
 Reducing balance method – fixed percentage
for depreciation deducted from the cost for
the first year. Second and subsequent years
using the same percentage minus the reduce
balance (NBV)
 Selection of deprecation method should
reflect the economic benefit business derived
from such assets
 Bad debts are irrecoverable debts arising
from credit sales given to customers
 Main purpose is to ensure debtors figures as
close as possible to the true value of debtors
at balance sheet date
 Will make a provision for long outstanding
debts as chances of recovering is lower
 Business will normally according to past trend
of debts recovering to determine the
percentage of bad debts provision
 Double entries are:
◦ Debit Income Statement

◦ Credit Provision for Bad Debts

 Balance in the Provision for Bad Debts accounts

will be carried forward to the next period
 Entries for increase in provision for bad debts in
the subsequent years:
◦ Debit Income Statement

◦ Credit Provision for Bad Debts

 Entries for decrease in provision for bad
debts in the subsequent years:
◦ Debit Provision for Bad Debts
◦ Credit Income Statement

 Balance carried forward to the following

accounting period will be lower
 Accrual are:
◦ Expenses incurred by business during an
accounting period but not yet paid
◦ Revenue generated but money not yet received

 Prepayment are:
◦ Expenses paid in advance by business for an
accounting period
◦ Revenue received in advance before goods or
services provided to customers
 Accrual on:
◦ Expenses is shown as liabilities in balance sheet
◦ Entries are:
 Debit – Expenses account (income statement)
 Credit – Accrual account (balance sheet)

◦ Revenue is shown as assets in balance sheet

◦ Entries are:
 Debit – Accrual account (balance sheet)
 Credit – Revenue account (income statement)
 Payment or collection done:
◦ Payment made on accrual expense, entries are:
 Debit – Accrual account (balance sheet)

 Credit – Bank / Cash account

◦ Collection of entries are:

 Debit – Bank / Cash Accounts

 Credit – Accrual account (balance sheet)

 Prepayment on:
◦ Expenses is shown as assets in balance sheet
◦ Entries are:
 Debit – Prepayment account (balance sheet)
 Credit – Bank / Cash Account

◦ Revenue is shown as liabilities in balance sheet

◦ Entries are:
 Debit – Bank / Cash Account
 Credit – Prepayment account (balance sheet)
 Utilisation of expenses or delivery of goods
or services to customers:
◦ On consumption of expenses, entries are:
 Debit – Expense account (income statement)
 Credit – Accrual account (balance sheet)

◦ On delivery of goods or services to customers

entries are:
 Debit – Accrual account (balance sheet)
 Credit – Revenue account (income statement)
[recognition of revenue]
 Output from
General Ledger

Trial Income Balance

Balance Statement Sheet
 Cost accounting is concern with the
following:
◦ Preparing statement (eg, budgets, costing etc)
◦ Cost data collection
◦ Applying cost to inventory, products and services
 Direct cost is a cost that can be traced in full
to the product or service
eg, direct materials cost, direct labour cost
 Indirect cost or overheads is cost that
incurred in the course of making a product,
providing a service which cannot be traced
directly in full to the product or service
 Fixed costs – cost which is incurred for a particular period of time and
which, within certain activity levels, is unaffected by changes in the level
of activities.
 Variable costs – cost which tends to vary with the level of activity.
 Semi-variable (or semi-fixed) cost – there are costs that vary with
production, but not in direct proportion on the volume.
 Avoidable costs – specific costs of an activity or business which would be
avoided if the activity or business did not exist.
 Unavoidable cost – costs which would be incurred whether or not an
activity or sector exists.
 Controllable cost – cost which can be influenced by management
decisions and actions.
 Uncontrollable cost – any cost that cannot be affected by management
within a given time frame.
 Step cost - cost that does not change steadily with changes in activity
volume
 Standard costing – a predetermined
calculation of how much costs should be
under specified working conditions.
 Variance – the difference between planned,
budgeted or standard cost and actual costs.
 Variance analysis – the analysis of variances
arising in a standard costing system into their
constituent parts.
 Level of activity which produces neither profit
no loss
 Assumptions in break-even analysis:
 Fixed costs is constant in total
◦ Variable costs is constant per unit
◦ Selling price is constant per unit
◦ All costs can be resolved into fixed and variable
elements
◦ Efficiency and productivity are to be unchanged
 Break-even point (in unit) = Fixed costs / Contribution per unit
 Break-even point (in $) = Fixed costs X Selling price per
Contribution per unit unit
OR
Fixed costs / CS Ratio
 CS Ratio = Contribution per unit / Sales price per unit X 100%
 Level of sales to result in target profit (in unit) =
(Fixed costs + Target profit) / Contribution per unit
 Level of sales to result in target profit (in $ sales) =
(Fixed costs + Target profit) / Contribution per unit X Selling price per
unit
 Margin of safety = Profit / CS Ratio
 Working capital management involves the
relationship between a firm's short-term assets
and its short-term liabilities
 Basic goal of working capital management is to
ensure that a firm is able to continue its
operations and that it has sufficient ability to
satisfy both maturing short-term debt and
upcoming operational expenses
 Working capital =
◦ Debtors collection period + inventory turnover period – creditor payment period
 Nature of business
 Term of sales and purchases
 Seasonal variation
 Market condition
 Business cycle
 Manufacturing / stock turnover
 Tax is certain and unavoidable
 Understanding of the tax implication of a
business transaction
 Able to compute own tax computation
 Able to keep your information
confidential
 An amount of money which is
taken from your earnings to help
towards some of the cost of
services we receive in this
country
 DIRECT TAX INDIRECT TAX
 Income Tax  Sales Tax
 Petroleum Tax  Custom Tax
 Stamp Duty  Service Tax
 RPGT  Excise Duty

* Directly paid by * Indirect tax can be

taxpayer and not transferable to other
transferable people
 Income tax shall be charged on the current year
basis where income accruing in and derived
from Malaysia in a current year will be
assessed to tax in the same year
 Receipts or gains which are income in nature
and fall within the ambit of Income Tax Act
1967 will be chargeable to tax. Income which
is capital in nature is excluded
 Income” is not being defined under the ITA 1967,
however, case law and judicial precedent would be
relevant in determining whether it is income or capital
in nature
CIT Vs Shaw Wallace, Income was defined to be:
“Periodical monetary returns coming in with a sort of
regularity from a defined source…………..excluding
anything in the nature of a mere windfall”
 Repetitive from a source of income and
received in the ordinary course of
business
 Periodical return from a defined sources
 Gains of profits fall into any of the sub-
paragraphs under s4 or s4A of ITA 1967
 Business income (s4(a) of ITA 1967)
◦ Definition of business
◦ Badges of trade
◦ Commencement of business
◦ Distinction between capital and revenue receipts
◦ Capital allowance
 Employment income (s4(b) of ITA 1967)
◦ Definition of employment income
◦ Gross income and adjusted income from
employment
◦ Valuation of benefits-in-kind
◦ Exemptions
 Other sources of income
◦ Dividend
◦ Interest S4(c) of ITA 1967
◦ Discount
◦ Rent
◦ Royalty S4(d) of ITA 1967
◦ Premiums
◦ Pensions
S4(e) of ITA 1967
◦ Annuities
◦ Other income under s 4 (f)
◦ Amount 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
◦ Amount 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
◦ Rent or other payments, made under any
agreement or arrangement for the use of any
moveable property
 Malaysia income tax system is founded on the
modified territorial concept where only income
accrued in or derived from Malaysia is subject to
Malaysia tax
 “Malaysia” is therefore include:
◦ Peninsular Malaysia
◦ East Malaysia (Sabah, Sarawak and Labuan)
◦ Territorial waters of Malaysia
◦ Sea-bed and subsoil of the territorial waters
◦ Any other area which Malaysia has the sovereign
rights
 World scope basis:
◦ Resident person chargeable to tax on
income whenever derived where that
person carries on specialised business
such as banking, insurance, sea and air
transport
 “Person” include
◦ Company
◦ Body of person
◦ Corporation sole
 “Company” means a body corporate and includes any
body of persons established with a separate legal
identity
 “Body of person” include Hindu Joint Family, trusts,
clubs, trade association and co-operative societies but
excluding partnership
 Witheffective from 1 January 2000,
Malaysia move towards the
implementation of current year
assessment which resulted in the
assessment of income tax to be
concurrent with the derivation of the
income
• Malaysia Income Tax Act 1967 uses a
quantitative test for the residence status of
individuals
• To qualify as tax resident, an individual must
satisfy the various test which uses number of
days the individual present in Malaysia under S7
of the ITA 1967
• S7(1A) provides that an individual is deemed to
be in Malaysia for a day if he is present only
part of the day in Malaysia
•S7(1)(a) – An individual is a tax resident in
Malaysia provided that he is present in
Malaysia in that basis year for a total of 182
days or more in a calendar year

Example:

89 DAYS 123 DAYS

1ST JAN 31ST DEC

1ST FEB 30TH APR 1ST JUL 31ST OCT

• S7(1)(b) – An individual is tax resident in Malaysia
if he is present in Malaysia for less than 182 days
provided that period is linked by or linked to
another period of 182 consecutive days or more
either immediately following or preceding that
year of assessment
• Temporary absences are ignore for ascertaining
the 182 days period as follows:
– Connected with his service in Malaysia and owing to
service matters on attending conferences or
seminars or studies
– Owing to ill health involving himself or immediate
family members; and
– In respect of social visit not exceeding 14 days in
aggregate
• S7(1)(c) – An individual was in Malaysia for a
total of 90 days in a calendar year and had also
met the conditions for any 3 out of 4
immediately preceding year as follows:
– That individual had been tax resident; OR
– He was present in Malaysia for a total period
of 90 days or more
 S7(1)(d) – An individual can still regarded as
tax resident even if he is totally absent from
Malaysia for the whole calendar year provided
that he has been a tax resident in Malaysia for
3 immediately preceding years AND also a tax
resident for the following year
• Resident tax at scale rate (0 – 26%) whereas
non-resident tax at flat rate of 26%
• Resident entitled to claim personal tax relief
• Rebate of RM400 for chargeable income less
than RM35,000 only granted to resident
• Exemption on certain income (eg, royalty
income) available only for resident
 YA PERIOD OF STAY NO OF DAYS
2006 1-07-2006 TO 31-12-2006 184
2007 1-01-2007 TO 31-01-2007 31
2008 1-01-2008 TO 31-03-2008 91
2009 1-03-2009 TO 31-03-2009 31
2010 1-02-2010 TO 31-05-2010 121
YA PERIOD OF STAY NO OF DAYS
2006 1-11-2006 TO 31-12-2006 61
2007 1-01-2007 TO 10-07-2007 192
2-09-2007 TO 11-10-2007 40
2008 3-04-2008 TO 05-10-2008 186
2009 3-04-2009 TO 15-07-2009 104
2010 1-02-2010 TO 31-07-2010 181
• Factor for companies in deciding to determine where
control and management are exercised
• The expression for “management and control” has not
been defined under the ITA 1967 but certain case law
decision may be relied upon
• The place where the board of directors meet would
determine whether the management and control are
exercise in Malaysia ~ De Beers Consolidated Mines
Ltd Vs Howe
• As general rules, the Management and Control is
normally exercised by its directors. Therefore, place
where the board of directors meet would determine
whether the management and control are exercise in
Malaysia
• The place where company’s central management and
control are situated usually will be the place where the
directors meet to conduct the business of the company ~
Koitaki Para Rubber Estates Ltd Vs FC Of T
• Therefore the place where the company is register or
incorporate is not taken into consideration in determine
the company’s tax resident status
• Scope of charge – Company (other than those carrying
on specialised businesses) only chargeable for income
accrued / derived from Malaysia
• Derivation of dividends – Distribution of dividend by a
resident company in a basis year deemed to be derived
from Malaysia whereas distribution of dividend by the
non-resident company is not a Malaysian source of
dividend
• Tax incentive only applicable to resident company
• Withholding tax is only applicable for non-resident
company
 Chargeable income of a person upon which is chargeable
for a year of assessment shall be ascertained the
followings:
◦ Basis period for each source of income for that year of
assessment
◦ Gross income for each source of income for the basis period
for that year of assessment
◦ Adjusted income from each source of income for the basis
period for the year of assessment
◦ Statutory income for each source of income come for that year
of assessment
◦ Aggregate income and total income for that year of assessment
◦ Chargeable income for that year of assessment
• Is the gross income for each source reduced by expenditure
wholly and exclusively incurred in the production of that
gross income
RM
Gross income XXX
Less: Tax deductible expenditure (XX)
Adjusted income XXX
OR
Net income (eg, net profit) XXX
Add: Non deductible expenditure (XX)
Adjusted income XXX
• Statutory income of a person from a source of income
for a year of assessment shall consist of:
Adjusted income AI
Add: Balancing charge BC
AJ
LESS: Sch. 3 allowances (SA)
Statutory income (if any) SI
Should the amount of SA exceed AJ, the Statutory
Income for that year of assessment shall be “nil”
• EXAMPLE:
Y/A 2006 Y/A 2007
RM RM
ADJUSTED INCOME 50,000 80,000
BALANCING CHARGE - 10,000
SCH. 3 ALLOWANCE 65,000 40,000
Y/A 2006 Y/A 2007
RM RM
ADJUSTED INCOME 50,000 80,000
BALANCING CHARGE - 10,000
50,000 90,000
SCH. 3 ALLOWANCE:
- CURRENT YEAR ALLOWANCE 65,000 40,000
- AMOUNT BROUGHT FORWARD - 15,000
50,000 55,000
NIL 35,000
• Aggregate Income of a person for a year
of assessment shall consists of:
oAggregate of his Statutory Business Income
(reduced by brought forward business loss)
oAggregate of his other source of income
oAny addition falling under Sch. 4 or 4A
• Aggregate Income of a person for a year of assessment shall consists of:
– Aggregate of his Statutory Business Income (reduced by brought forward business loss)
– Aggregate of his other source of income
– Any addition falling under Sch. 4 or 4A
Statutory Income:
Business I A
Partnership B
C
Business Loss B/F – S43(2) (D)
Statutory Income E
Employment F
Rental H I
Add: recoveries of abortive prospecting expenses J
Aggregate Income K

 Business Loss Brought Forward of “E” is used to reduced the Aggregate Amount of Business Income of “D”
 Any excess shall be carried forward to reduce Aggregate Statutory Business Income of subsequent year of
assessment
• Example:
RM
Statutory Business Income 50,000
Business Loss Brought Forward 60,000
Rental income 35,000
Statutory income: RM RM
Business Income 50,000
S43(2) Loss b/f 60,000
Amount Utilised (50,000)
Unabsorbed Loss b/f 10,000 NIL
Statutory Income NIL
Rental 35,000
Aggregate Income 35,000
• Consist of Aggregate Income for a year of
assessment reduced by deductions allowed
under S44:
– Adjusted loss for the basis period (business)
– Prospecting expenditure
– Qualifying pre-operational business expenditure
– Approved donation
– Group loss relief
• Approved donations in cash to approved
institutions, Government or State Government,
local authority are allowed against aggregate
income
• Unabsorbed donations are not allowed to be
carried forward to the following year of
assessment event the amount of donations
exceeded aggregate income
• Donations to approved institutions or government
• ith effective from YA 2009, cash donation to approved institution will be
restricted to:
• Company 10% of aggregate income
• Non-company 7% of aggregate income
 (the limitation does not apply to donation to Government, State
Government and local authority)
• Donation of artefact, manuscript or painting to Government
• Donations to approved libraries (restricted to RM20,000)
• Donation for public facilities by individual
• Donations of painting to National or State Art Gallery
• Zakat perniagaan
• Contribution to approved sports activity
• Contribution to project of national interest
• Chargeable income = Total Income - Relief
• Relief refer to personal relief that are only
available for resident individual
• Example of relief are personal relief, husband /
wife relief or alimony payment, reading
materials, EPF and life insurance, child relief,
medical benefits / educational policy etc
• For non resident individual or company,
Chargeable Income = Total Income
• Example:
RM
Total Income XXXX
Less: Deduction
Personal Relief (XXX)
Husband/wife Relief (XXX)
Child Relief (XXX)
EPF and Life Insurance Relief (XXX)
EPF Annuity Scheme (XXX)
Reading Materials (XXX)
Medical/educational Policies (XXX)
Chageable Income XXX
Chargeable income Rates Tax payable
(RM) (%) (RM)
First 2,500 0 0
Next 2,500 0 0
On 5,000 0
Next 5,000 1 50
On 10,000 50
Next 10,000 1 100
On 20,000 150
Next 15,000 5 750
On 35,000 900
Next 15,000 10 1,500
On 50,000 2,400
Chargeable income Rates Tax payable
(RM) (%) (RM)
Next 20,000 16 3,200
On 70,000 5,600
Next 30,000 21 6,300
On 100,000 11,900
Next 150,000 24 36,000
On 250,000 49,900
Next 150,000 24.5 36,750
On 400,000 84,650
Exceeding RM400,000 25
•Section 2 of ITA 1967 defines a
business to include the following:
(a) Profession
(b) Vocation
(c) Trade
(d) Others
(i) Illegal activities
(ii) Gambling activities
(iii) Hobbies
(iv) Mutual transactions
• Badges of trade – The following badges may be used to determine
whether a receipts is considered to be capital or revenue receipts:
(a) Subject matter of realisation
(b) Length of ownership
(c) Frequency of transaction
(d) Manner of realisation
(e) Supplementary work
(f) Circumstances leading to realisation
(g) Motive of making profit
(h) Nature of entity
(i) Dealing in similar subject matter
(j) Method of financing
(k) Manner of acquisition
(l) Accounting treatment
• The above badges of trade are only broad guidelines in
determining whether a particular set of circumstances constitutes
a trade
 Revenue receipts Capital receipts

1. Provision of services 1. Gift

2. Sales of goods / trading stock
3. Trading or adventure in the
nature of trade
4. Profit from disposal of short
term investment
2. Profit from disposal of long term
investment
3. Speculation, windfall gains
4. Gambling
5. Sale of capital assets
•All debts arising in the course of carrying
on a business as provided under s24(1)
•Non-refundable advance received
•Market value of stock withdrawn for
personal use
•Dividend income from a share dealing
business
•Interest income of banks, financial
institutions and money lenders
•Bad debts recovered
•Commencement date of a business is important
for income tax because:
(i) pre-commencement revenue expenditure is not
deductible
(ii) Qualifying capital expenditures which are eligible for
capital allowance in the first basis period
(iii) It would affect the selection of year end and
subsequently first YA that is subjected to income tax
•Commencement of business refers to the
carrying out of an essential activity and not
requires the completion of products
(manufacturing) or sale of products (trading)
• Only revenue expenditures are allowed to be
deducted in arriving of adjusted income. In other
words, capital expenditures are not deductible
• The following will determine whether expenditure
is capital or revenue in nature:
– Initial expenditure
• Pre-commencement expenditure
• Expenditure incurred to turn a newly acquired asset into
working condition
– Fixed capital or circulating capital
– Bringing into existence of asset
– Lump sum payment
• Under s33 of ITA 1967, revenue expenses incurred
wholly and exclusively in the production of business
income will be deductible for income tax purpose
• specific provision of bad debts is deductible however
general provision of bad debts is not deductible
• Trade debts taken over is treated as profit made by the
sale of fixed assets, therefore not assessable to tax
• Advances to supplier which is borrowing in nature when
written off is not deductible for income tax
• Advances to staffs written off also non-deductible for
tax purpose as it is not incurred for generation of
income
• Contribution made to approved schemes is restricted to
19% of the employee’s remuneration
• Legal and professional expenses relates to:
• Violation of law is non-deductible
• Preparation of new contract is non-deductible as it is
capital in nature
• Renewal of trade contract is deductible as it is traded
as expenses incurred to generate income
• Cost of tax appeal is not deductible as it is not
incurred for production of income
• Defalcation by employee as part of his duty of service to
withdraw money from bank would therefore constitute
trading loss and deductible for tax
• Defalcation by director is non-deductible for tax since
the director was in a position to do exactly as he likes,
therefore the loss was held not deductible
• Premium paid on keyman insurance with the objective
to cover loss of business income due to sudden death
of key employees is deductible. However, proceeds from
such policy also assessable to income tax
• Domestic or private expenses
• Expenses not wholly and exclusively incurred for the
production of gross business income
• Capital withdrawal from business
• Payment made to unapproved scheme
• Capital expenditures
• Payment made to non-resident where withholding tax is
not comply
• Sum payable for the use of a license or permit to extract
timber from forest other than sum payable to State
Government, State Authorities or body approved by
Minister
• Lease rental
• The accumulated sum of each lease rental in respect
of each vehicle shall not in aggregate exceeds
RM50,000 or RM100,000 depending on the value of
the non-commercial vehicle
• Entertainment expenses
• Leave passage
• Qualifying Capital Expenditure is capital
expenditure incurred on the provision assets
used for the purposes of a business
• The claim of capital allowance is restricted to
the same business source of income only
• Qualifying criteria for capital allowance to be
claimed if:
– The person is carrying on a business; and
– Incurred qualifying expenditure
– Used such assets in the business
– Owner of the assets at the end of basis period
• Initial allowance is given when a person first
acquired qualifying assets for business use
• Unless otherwise stated, initial allowance is
given at a rate of 20% in the qualifying
expenditure incurred in the basis period
calculated on straight line basis
• If an assets is acquired and disposed in the
same year, initial allowance is given
provided he is the owner and such asset is
in use sometime before the disposal
• Annual allowance is given every year to the
taxpayer so long as the asset is in use at the
end of the basis period
• With effect from YA2000 (C), annual allowances
rates are segregated to three classes as follows:
– Office equipment, furniture
and fittings, others 10%
– General plant and machinery 14%
– Heavy machinery, motor vehicles 20%
• Small value assets to be given 100%
capital allowance in the year of
acquisition. Small value assets are:
– Value of each asset not exceed RM1,300
– Total capital allowance claim on small value
assets should not exceed RM13,000
– He is the owner of the asset
– Asset is use in the business
– Assets have not more than 2 years life span
• Qualifying expenditure for motor vehicle is
restricted to RM50,000 and it is computed based on
each passenger vehicle and it will be on a cumulative
basis if the car is on hire purchase
• With effective from YA2001, qualifying expenditure
for motor vehicle increases to a maximum of
RM100,000 provided:
• Total cost of the motor vehicle does not exceed or equal to
RM150,000
• It is a new motor vehicle
• Commercial vehicles is not subject to this restriction
• Balancing charge is the withdrawal of capital
allowance previously claimed for a qualifying
asset when it is disposed
• Balancing charge is not tax on gain of disposal
of qualifying assets but merely withdrawal of
capital allowance previously claimed.
Therefore, balancing charge imposed is
restricted to total amount of capital allowance
claimed previously
• When sales proceed is lower than the residual
expenditure, the difference is balancing allowance
(residual expenditure = total qualifying cost incurred – [initial
allowance + annual allowance])
• Meaning of disposal is sold, discarded, destroyed
or ceases to be use for the purpose of the
business
• Where there is disposal by sale, transfer or
assignment, the disposal value will be the higher
of market value at date of disposal or net proceed
of sale, transfer or assignment
• If qualifying plant is disposed of within 2
years, all the capital allowance will be
“clawback” by the way of balancing
charge in the year of disposal unless
commercial justification can be provided
• The 2 years refer to the exact number of
days in the 2 years
• Not all building allowed to claim IBA
• Only building categorised as industrial
building allowed to claim IBA
• What are those building categorised as
Industrial Building?
 Industrial Building Rate of IBA
IA (%) AA (%)
Factory 10 3
Private hospital, nursing and maternity home 10 3
Building used for R & D 10 3
Building used in approved service center 10 3
Hotel 10 3
Airport 10 3
Motor racing circuit 10 3
Public road with toll collection 10 6
Building build and lease transfer to government 10 6
 Industrial Building Rate of IBA
IA (%) AA (%)
Child care center - 10
School or educational institution - 10
Old folks care center - 10
Kindergarten - 10
Bionexus status company - 10
Tun Razak Exchange Marquee Status Company - 10
• Chargeable to Malaysia Income Tax Act by virtue of
s4(b) as “Gain or Profit from Employment”
• “Employment” as defined by the is:
– Relation of Master and servant subsists; or
– Any appointment, whether or not that relationship
subsists, for which remuneration is payable
• Where a person receives income from a contract
entered, that income can be a contract for service or
contract of service
• Income from contract for service shall be assessable as
a business income
• For contract of service, income shall be assessed as an
employment source of income
• IMPORTANCE OF DISTINCTION FOR CONTRACT FOR SERVICE AND CONTRACT OF
SERVICE FOR TAX PURPOSES

CONTRACT OF CONTRACT FOR

SERVICE SERVICE

(a) LOSS RELIEF NO RELIEF DEDUCTABLE

(b) RELIEF FOR

CAPITAL NO RELIER CAPITAL ALLOWANCE
EXPENDITURE

(c) DEDUCTION OF RESTRICTED EXPENSES CONCESSION BEING

EXPENSES CLAIMABLE GIVEN ON CERTAIN
EXPENSES DEDUCTABLE

(d) BASIS PERIOD CALENDER YEAR BASIS FINANCIAL YEAR BASIS

(e) NON RESIDENT EXEMPTED UNDER NO EXEMPTION

DERIVING PARA 21 SCH 6
MALAYSIA INCOME
•Broad guidelines used to determine
whether the contact is of service or for
service:
– Master and servant relationship
– Extent of control by the employer as how the
work is to be performed and the manner it is
to be done
– Defined hours of work
– Restriction to contract with other parties
 Types of employment income

S13(1)(a) S13(1)(c) S13(1)(e)

Monetary or Living Compensation

non-monetary accommodation for loss of
remuneration benefit employment

S13(1)(d)
S13(1)(b)
Withdrawal
Benefit –In-Kind
from
unapproved
fund
•Any wages, salary, remuneration, leave
pay, commission, bonus, gratuity,
perquisite allowance (in money or
otherwise) in respect of having exercising
the employment
•Including amount received in the ordinary
course of employment, which may or may
not be from employer. Example, tips
•It gives an employee an option to acquire
shares in a company at a fixed price and with a
right to exercise the option in the future
•Excess of the market price over the option
price at the time the option was granted is
assessable to income tax at “perquisite” under
s13(1)(a)
•W.e.f YA2006, the perquisite is taxed in the
year the option was exercised
•Section 32(1A) provides the manner to
compute the perquisite value is the lower of:
•Market value at the time the option was
granted (exercisable); or
•Market value at the time the option was
exercise
Less option price
•Inducement payment to an individual to
compensate for his loss of status for taking up
another employment is capital receipt as the
employment source has not existed
•The individual is paid an inducement to give up
an established position. Such income is not a
reward for future service thus is not “income”
in nature
•Employee may receive loan from employer
either interest free or at a rate lower than the
market. Whether this is benefit is assessable to
income tax is depend on the source of the fund
and its cost to the company
(i) Internal fund – NOT taxable
(ii) External fund – Taxable
(iii)Interest subsidy – Taxable
(iv) Waiver or loan / advance – Taxable
•Actual expenses incurred by employer (direct
payment or reimbursement to an employee) on
school or tuition fees for the children (studying
in or outside M’sia) of the employee would be
assessable under s13(1)(a) of the employee
•The course of studies undertaken by the
employee for the purpose of enhancing the
skill of the employee are NOT taxable on
employee
•Employee’s family or their appointed nominees
are the beneficiaries of the policy, the annual
premium paid by the employer would be
taxable
•Insurance premium which are obligatory in lieu
of contribute (eg, Socso, group insurance & etc)
are tax exempted benefit under s13(1)(b)
•These performance award are given to
employees of public sector in monetary form is
assessable under s13(1)(a)
•Exemption of RM2,000 is given to each
employee for each YA for:
•Long service award (at least 10 years)
•Past achievement award
•Service excellent, innovation or productivity
award
•Employer in some instances will pay (inclusive
of reimbursement) the following expenses on
behalf of the employees and it is taxable on the
employees under s13(1)(a)
•Income tax
•Utilities bill such as electricity, water,
telephone & etc
•Provided by employer to facilitate the carrying
on of the duties and also for private purchase,
the following will be taxable as perquisite:
•Annual membership fees; and
•Amount paid for private purchase
•If credit card is used exclusively for performing
duties including entertainment the employer’s
customers then is NOT taxable
•Where assets such as car is provided free of
charge or sold at discount by employer to
employee, the perquisite to be assessed will
be:
RM
Market value XXX
Less: amount paid by employee (if any) (XXX)
Perquisite taxable under s13(1)(a) XX
Exemption of benefits, perquisite and allowances,
effective from YA2008, except for (a) which is effective
from YA2008-YA2010
• Petrol card or petrol allowance or travelling allowance
between the home and work place up to RM2,400 per
year
• Petrol card or petrol allowance or travel allowance and toll
card for official duties up to RM6,000 a year
• Allowance of fees for parking
• Meal allowance
• Allowance or subsidies for childcare of up to RM2,400 a
year
• Telephone and mobile phone, telephone bills, pager,
personal data assistant (PDA) and internet subscription
Income tax (exemption) order 2009 (con’t)
• Employer’s own goods provided free of charge or at
discounted value where the value of the discount does not
exceed RM1,000 a year
• Employers’ own services provided free or at a discount
provided such benefits are not transferable
• Subsidies of interest on loan totalling up to RM300,000 for
housing, passenger motor vehicles and education. The
exemption be given to existing and new loan
• Medical benefits exempted from tax be extended to
include expenses on maternity and traditional medicines
such as acupuncture, and
• Existing perquisites be extended to awards related to
innovation, productivity and efficiency such as Six Sigma
Awards and the exemption be increased from RM1,000 to
RM2,000
Section 13(1)(b) of ITA 1967

•Value of use or enjoyment by the employee of

any benefits or amenities provided by employer
to employee
•It is not convertible into monetary value
•It has no exact monetary value
•Taxable benefits assessable to income tax
depends on costs to the employer providing it to
employee or refer to BIK Guideline
concessionary rate
Tax exempted BIK
• Free transport that refers to factory providing transport
for workers from certain pick up point
• Goods and services offered at a lower price or at a
discount
• Refers to goods for daily consumption which are
provided or sold by employer
• Exclude houses sold to employee at discount
• Employer must extend the benefit to all employee
• Value of the consumables or products must not
exceed RM200
• Medial or dental treatment for employee and immediate
family
• Benefit of child care facility offered to employee by
employer
Tax exempted BIK (con’t)

• Leave passage but restricted to

• 3 local trips; and
• RM3,000 per family for 1 overseas trip
(restricted to air fare, insurance & transit cost)
• Benefits provided to employee for him to carry out
official duties
• Relocation package where:
• Employee that require to work in overseas through
secondment is paid for relocation cost
• It is not income to employee and not taxable
because the employee is not benefit from it
Accommodation provided by employer

• To employees and service director of a

controlled company
• Value of accommodation benefit is either:
(i) Defined value; or
(ii) 30% of the employee’s s13(1)(a) income
Whichever is lower
• Non-service director of a controlled company
• Value of accommodation benefit is the defined value
of living accommodation provided by the company
Accommodation provided by
employer

• service director
• Owns less than 5% of the shares of the company;
• Acts in a managerial or technical capacity

• Controlled company
• Company having not more than 50 members; and
• Controlled by not more than 5 person
Section 13(1)(c)
Module 3
Facilitator: Chow Leong Choon
Intake: February 2011
Class Code: CFP 302

Value of living accommodation

Defined value 30% of

Rental paid by OR s13(1)(a
employer
) income
OR
Rateable value
/ economic
rent

Whichever is lower
Section 13(1)(c) (con’t)

• If living accommodation is provided to

employee or service director of a controlled
company in hostel, hotel, house situated in
forest or plantation or not rateable area, then
value to be taken is 3% of s13(1)(a)
• If accommodation is provided for less than a
year, apportioned on time basis
• However, no adjustment made for shared
accommodation
Section 13(1)(d)

• Contribution made by employer to the

approved pension or provident fund, scheme or
society; and
• Any income earned (eg, interest, bonus & etc)
by such unapproved fund and credited to the
employee
• Full amount would be assessed in the year of
withdrawal from such unapproved fund,
scheme oor society
Section 13(1)(e)

• Salary in lieu of notice

• Compensation for breach of contract of service
• Payment for the release of the employer’s
obligation under contract of service
• Retrenchment payment, gratuity payment made
to redundant payment
• Restrictive convenant
Section 13(1)(e) (con’t)

Exemption on compensation for loss of

employment

Total exemption
Partial exemption

Due to ill-health
RM10,000 for each
completed year of
service with the
same employer or
companies
 Reliefs and rebate would reduce the amount of tax payable
of an individual tax payer if the individual tax payer is tax
resident in Malaysia
 Resident individual would entitled for a personal relief of
RM9,000 in respect of himself and this applies to a wife
who is under separate assessment. Personal relief of
RM9,000 is claimed by the following:
◦ Resident individual
◦ Married woman who did not elect for join assessment
 A further deduction of RM6,000 to a disable taxpayer and
RM3,500 for taxpayer’s spouse who is disable if the spouse
elect for joint assessment
 Where the wife is living together with the husband in
relevant basis year, the husband is able to claim wife relief
of RM3,000
 A resident individual can claim deduction for child relief if he
paid maintenance of the child at any time of the basis period for:
◦ An unmarried child who is under 18 years old
◦ Unmarried child who is receiving full time instruction at any university,
college, school or other similar educational established
◦ Unmarried child who is physically or mentally disable
◦ Unmarried child who is serving under articles or indentures with a
view to qualify in trade or profession
 The ordinary deduction for a child is RM1,000 where as in the
case of disable child, the deduction is RM5,000
 Effective Y/A 1996, a wife will be given the option to claim child
relief
 For a child who study in local universities, college or similar
establishments, a relief or RM6,000 is given to the taxpayer
 An additional RM5,000 is given to taxpayer for a disable child
who pursuing tertiary education
 Deduction of RM5,000 in a basis year of
assessment shall given to an individual for the
purchase of basic supporting equipment for
his own use or for the use of his wife, child or
parents who is disable
 “Disable person” is defined to mean an
individual certified in writing by the
department of social welfare
• Taxpayer who is citizen and resident in Malaysia who
purchase of residential property in Malaysia where the sale
and purchase agreement has been executed during
10/3/2009 – 31/12/2010 shall be given tax relief on
interest cost up to RM10,000 for each year of assessment
for 3 consecutive year of assessment beginning from the
basis year in which the interest is first expended by that
individual
 This however is subjected to the following restriction:
◦ The purchase of the residential property is limited to only one
unit;
◦ The individual has not derived any income in respect of that
residential property
 Parents medical expenses
◦ Maximum of RM5,000 for parents medical expenses
would be given to a taxpayer as relief in a basis
period. However, all the claims must be supported
with receipts
 Life insurance premium and contribution to
approved funds
◦ Maximum of RM6,000 for life insurance and
approved fund contribution
◦ wef YA2012, a relief of RM3,000 is given for
deferred annuity contract and PRS
 Education and medical insurance
◦ Maximum of RM3,000 for insurance premium for medical or
educational benefits
 Serious diseases
◦ Deduction of RM5,000 for taxpayer, spouse and children on
serious diseases. The RM5,000 including RM500 for medical
examination expenses
 Course fees for self improvement
◦ Deduction of maximum of RM5,000 of fees for acquiring
technical, vocational, industrial, scientific, technology, law,
accounting, Islamic Finance, skills or qualification with any
institution or professional body recognised by the government
or Ministry of Finance inclusive Master and Doctorate courses
 Purchase of books
◦ RM1,000(max) for purchase of books, magazines,
journals and other similar publication (excluding
newspaper or banned publication) for the use of
taxpayer, spouse or children
 Personal computer
◦ If a taxpayer purchase a computer during a basis period
for a year of assessment, RM3,000 relief is given once
every 3 year effective year of assessment 2007
 Deposit with SSPN
◦ SSPN accounts can get reliefs of RM6,000
 Purchase of sport equipment
◦ Maximum relief of RM300 per year for the purchase of
sport equipment effective YA2008
 An individual resident for the basis period for a year of
assessment will be granted a rebate of:
(a) Individual RM400
(b) Spouse RM400
the above rebate only available for chargeable income less than
RM35,000
 In term of joint assessment, if chargeable income of husband and
wife under joint assessment would entitled to claim a rebate of
RM800 (RM400+RM400)
 In case of Zakat and islamic dues a rebate shall be granted for a
year of assessment for payment which is obligatory and is paid
during the basis year for a year of assessment
• Malaysia moves to current YA with effective 1
January 2000, which known as “pay as you earn”
basis
• Companies, co-operative societies or trust body
will submit their returns within 7 months
followings the close of their accounting period
• For taxpayers with business income, they shall
submit their returns not later than 30 June in the
following a YA
• Taxpayers with employment or investment
income, returns have to be submitted at the latest
by 30 April of the following YA
BE Resident individual with employment and investment income

B Resident individual with other sources of income besides

employment income
M Non-resident individual
C Companies
C1 Co-operative societies
P Partnership
T Trust, deceased person estate, club, association, societies
and Hindu Joint Family
E Return by employer
• There are several tax payment schemes
implemented to facilitate collections under
the current year of assessment and self-
assessment system

Categories of taxpayers Collection schemes

Individual with business income & 6 bi-monthly installment
other incomes
Individual with employment & other Schedular Tax Deduction (PCB)
incomes
Companies 12 equal monthly installment
• The determination or estimation of tax payable by
installment for the current year is normally based on
the tax payable of the prior year
• Tax authorities will issue a notice of installment
payment
• The taxpayer is able to revise the tax payable in the 6th
and 9th month for each basis period in a YA
• When installment payment are varied, an automatic
penalty will be imposed if the final tax liability exceeds
the total installment payment by more than 30% , a
penalty of 10% on the difference will be imposed
• When installment payments are varied, an
automatic penalty will be imposed if the
final tax liability exceeds the total
installment payments by more than 30%
• The penalty will be 10% on the difference
which exceed 30 of the tax payable
• Installment payment should be made
within 30 days from the due date. Late
payment would attract automatic penalty
of 10% of the amount of installment
• Is a mechanism to collect tax from employees
on the monthly basis notwithstanding that the
employee has not submitted the return
• Only remuneration paid during the month and
are specified in S13(1) will be subject to STD
• Employer shall pay the DG using the form
CP39 not later than the 10th day of every
calendar month
• The tax authorities will refund the tax overpaid
directly to the employee upon request
• Determination of deduction of PCB:
- Employee’s monthly income;
- Any contribution to EPF or approved
pension fund;
- His marital status;
- Number of children
- Working status of wife
• A 10% of penalty will be imposed
on any amount outstanding after
the date of the notice of the
assessment
• A further 5% will be imposed on
the tax and penalty that is more
than 30 days
• Under the self assessment, Company,
trust body or co-operative society is
required to furnish an estimate of
income tax payable for a YA in
prescribed form (CP204) not later than
30 days before the beginning of the
basis period
• The income tax payable in the Form
CP204 is required to pay in an 12 equal
monthly installment
• The monthly installment will be due on the
10th day of every month commencing from
the second month of the basis period
• Failure to pay the tax installment on the 10th
day of the following month will subject to 10%
of the unpaid amount
• The company is able to revise the tax payable
in the 6th and 9th month for each basis period
in a YA
• When installment payments are varied, an
automatic penalty will be imposed if the
final tax liability exceeds the total
installment payments by more than 30%
• The penalty will be 10% on the difference
which exceed 30 of the tax payable
• Installment payment should be made
within 30 days from the due date. Late
payment would attract automatic penalty
of 10% of the amount of installment
• If taxpayer has paid tax for any year of assessment
due to error or mistake, he may within 6 years at the
end of the year of assessment which the error or
mistake was made to the DG before the assessment
is becoming final and conclusive
• The application must be in writing
• Taxpayer is not entitled to application under the
following circumstances:
- Change of tax treatment
- Prevailing practice
•Imposed on non residents who has business
dealings in Malaysia but does not have business
present in Malaysia, merely renders services
from his home country
•Withholding tax restricted to the following
types of payments to non resident:
– Special class of income
– Interest
– Royalty
– Contract payment
– Public entertainer
 It is also known as Value Added Tax (VAT) is
some countries
 160 countries have implemented VAT / GST
 France was the first country to introduce
VAT in 1954
 It is a broad based consumption tax
collected at every stage of production and
distribution chain
 Implementation of GST will replace current
sales and service tax
 GST will be imposed at a standard rate of
6% (Announced in Budget 2014)
 Replace of current sales and service tax
which has cascading tax effect on certain
business
 Self policing and cut down tax evasion
because of build in mechanism
 Encourage investment by lowering taxes
 Broaden the tax based
 Provide more stable source of income to
for government
 To increase revenue for government
 GST will levied on any supply of goods and
services made in Malaysia or imported into
Malaysia
 Imported services must be consumed in
Malaysia in order to be subjected to GST
 If only a portion is consumed in Malaysia,
GST will only be liable for that portion only
 No GST on supply of imported services on
the zero rated or exempt supply in Malaysia
 “Supply” for GST purpose are:
- there must be a transaction between
supplier and buyer involving transfer of
goods or provision of services; and
- there must be a consideration from
buyer
 If only one of the condition above fulfilled,
there is no “supply” for GST purpose
 All supply of goods and provision of
services made in Malaysia are taxable
except on exempt supply or zero rate
supply
 Is taxable supplies of goods and services
which are subject to GST at standard rate
 Businesses as collecting agent, collected
GST and remit to government
 Business can claim credit on their input
tax against output tax and only remit the
difference to government
 If input tax is bigger than output tax,
business allowed to claim back the
difference from government
At each level of the distribution chain,
GST will be imposed at 6% on the value
added portion and consumers will
eventually pay the GST on consumption
of goods or services in Malaysia
 Is taxable supplies of goods and services
which are subject to GST at 0%
 Input tax claim as credit from Customs
 Examples are basic foods items, supply
of treated water to domestic users, first
200 units of electricity to domestic
household users and goods supplies to
designated areas
• Supplier • Manufacture • Wholesalers
imposed r producing and retailers
GST to the product acquire the
manufactu is subjected product at
rer on to GST at 0% 05 GST
supply of • Input tax • Consumers
raw paid by will be able
material at manufacture to consume
6% r to supplier the product
allowed to without
claim paying any
GST
 Are supplies of goods or services which
are not subject to GST
 input tax cannot claim as credit from
Customs
 Examples are transportation services,
tolled highway, sale, purchase and rental
of residential properties, land for
agriculture or general use, education
services, private health care services etc
• Supplier • Service
imposed GST provider
to service provide the
provider on service to its
supply of customers and
raw material GST imposed
at 6% • Input tax paid
by service
provider to
supplier is
NOT allowed
to claim
 Supply that not charging within the GST Act
 Input tax incurred cannot be claimed
 Deemed out of scope supply are:
- Where laws deems that there is no supply.
Eg, intra group supply, transfer as going
concern, contribution to EPF etc
- Transactions outside Malaysia
- Supply by non-taxable person (person
below threshold)
- Non-business transactions (private
transactions)
 Place of supply for goods:
- It is treated as supply in Malaysia where the
goods are remove from a place in Malaysia to
another place in or outside Malaysia
 Place of supply for services:
- treated as supply in Malaysia if the
supplier belongs in Malaysia
- “Belongs” means business
establishment in Malaysia or usual
place of residence is in Malaysia
 Refers to the time when supply is made (tax
point) in order to determine when is the taxable
person should report his GST return
 In general, GST is accounted for the earliest of :
- When goods are removed or services are performed
- Issue of tax invoice
- When payment received
 However, if tax invoice is issued within 21 days
of basic tax point and no payment has been
received, then the time of supply is the date of
tax invoice
 Under GST Act, if tax invoice is not issue within
21 days after supply has taken place is an
offence
 What is value of supply?
◦ Value of supply referring to consideration received
 Consideration received can be monetary or non-
monetary
 Determination of monetary consideration is:
Consideration = Value + GST
 Determination of non-monetary consideration is:
Value = open market value
 Value of imported goods:
- value for the purpose of customs duty
- amount of duty paid or payable
- amount of excise duty paid or payable
 Value of imported service is the consideration
paid to overseas supplier
 Person who makes or intends to make
taxable supplies

 Registered under the Act

 Includes individual, partnership, firms,

companies, club and associations,
society, statutory body etc who involved
in business
 It is required for taxable person who is making
taxable supply of goods and services in Malaysia
and the taxable turnover of such supply exceeds
RM500,000 are required to be licensed under
GST
 Taxable turnover includes:
- standard rated supply
- zero rated supply
- deemed supply
 Taxable turnover excludes:
- sales of capital assets
- imported services
- exempt supplies
- supply to designated areas
 Application for registration may be made
manually or electronically
 Liability to register is determined by:
- historical turnover – turnover based on current
months and preceding 11 months; or
- future turnover - turnover based on current
months and future 11 months
 Taxable person shall register within 28 days from
the end of month where the business has
exceeded the threshold on the 1st day of the
following month
 Pre-registration before implementation of GST is
allowed
 Voluntary registration is allowed for taxable
person making or intend to make taxable supply
 Who should apply for voluntary registration?
◦ Taxable business below threshold
◦ Business intend to make taxable supply
◦ Malaysia business making taxable supply for
overseas markeet
 Why?
◦ To claim of input tax
◦ Responsibilities:
 Requirement for proper record keeping
 Costs incurred such as training of staff and other
compliance costs
 Collection and payment of GST
 Taxable period is determined upon the
approval of GST and DG will assign
taxable person to one of the following:
- taxable period of ONE (1) month for
annual turnover more than RM5 million
- taxable period of THREE (3) months for
annual turnover not more than RM5
million
- taxable period of SIX (6) months under
special cases subjected to approval of
DG. Eg, small business
 Collection and payment of GST are on
self-assessment basis
 Training of employees
 Understand the laws and regulation of GST
 Ensuring accounting system and invoicing
system cater for GST submission and
keeping of necessary records
 Proper documentation for facilitating the
claim of input tax
 Identify the impact on cash flow
 Review and update on GST from time-to-
time
 Shareholders are the owner of a corporate.
However, they are not managing the business
 Shareholders will appoint a group of
professional to manage the business
 Board of Directors is managing the business
entrusted by shareholders
 Directors are responsible of preparing
financial reports to shareholders
 In order to increase the reliability of financial
reports prepared by Board of Directors, an
independent professional is engage to check
and verify the financial reports prepared by
Directors – Auditor
 After checked and verified the financial
reports, auditor will prepare an audited
reports to stakeholders
A – Analytical
U – Unassuming/unbiased
D – Diplomatic
I – Inquisitive/independent
T – Thorough
O – Objective
R - Reliable
 External and internal audit
o Internal audit – by own staff
o External Audit – performed by duly qualified professional
accountants
 Statutory and non-statutory audit
◦ Statutory audit is required by Law
◦ Non-statutory audit is not required by any law or
regulation
 Interim audit – conducted during the year for a
particular period
 Final Audit – after the end of the financial year to
audit complete accounts
 Continuous Audit – Continuous and several visits (
similar to internal audit)
 External audit (EA): normally statutory requirement, unlike
internal audit (IA)
 EA reports are addressed to stakeholders: IA reports are
addressed to Management
 EA reports express an opinion on the financial statements
prepared by the entity for a specified period: IA reports evaluate
and check compliance against key internal controls
 EA reports are usually public documents which are available to all
stakeholders. IA reports are for use only by Management
 EA reports do not make recommendations, although may have a
Management Letter: IA reports are incomplete without
 EA is basically a review of financial statements for compliance: IA
seeks to ensure value for money to Management
 Independence and objectivity of internal
auditors
 Expertise of internal auditor in term of
qualification and experience
 Due care as internal auditor should exercise
professional skill and judgement
 Foster constructive working relationship with
management
 Planning, controlling and recording
 System control to identify weakness of
internal control
 Internal control is a process, effected by an
entity’s board of directors, management,
and other personnel, designed to provide
reasonable assurance regarding the
achievement of objectives in the following
categories:
◦ Effectiveness and efficiency of operations
◦ Reliability of financial reporting
◦ Compliance with applicable laws and regulations
 Compliance with applicable laws and
regulations.
 Accomplishment of the entity’s mission
(objectives and goals).
 Relevant and reliable financial reporting.
 Effective and efficient operations.
 Safeguarding of assets.
 Poor internal control will results in:

◦ Business Interruption - system breakdowns or

catastrophes, excessive re-work to correct for errors.
◦ Erroneous Management Decisions - based on erroneous,
inadequate or misleading information.
◦ Fraud, Embezzlement and Theft -by management,
employees, customers, vendors, or the public-at-large.

◦ Statutory Sanctions- penalties arising from failure to

comply with regulatory requirements, as well as overt
violations.
◦ Excessive Costs/Deficient Revenues - expenses which
could have been avoided, as well as loss of revenues to
which the organization is entitled.
◦ Loss, Misuse or Destruction of Assets -unintentional loss of
physical assets such as cash, inventory, and equipment.
 Audit of the economy of administrative activities in
accordance with sound administrative principles and
practices, and management policies;
 Audit of the efficiency of utilization of human,
financial and other resources, including examination
of information systems, performance measures and
monitoring arrangements;
 Audit of the effectiveness of performance in relation
to achievement of the objectiveness of the audited
entity, and audit of the actual impact of activities
compared with the intended impact.
 Performance audits give management valuable
recommendations for improving program
performance, one of the primary goals of
performance management
 Auditors help management understand how to
improve the system and use it better to improve
decisions, performance, and accountability
 Performance auditing is a way to ‘execute
control’ and to obtain insight into the running
and outcome of different management activities –
Transparency
 The Risk Management Process consists of a series of
steps that, when undertaken in sequence, enable
continual improvement in decision-making
 Steps of risk management process
Communicate and consult (person involved)
Establish the context (established objectives)
Identify the risks
Analyze the risks
Evaluate the risks (impact of risk to business)
Treat the risks
Monitor and review
 Risk is the uncertainty that surrounds the
future events and outcomes that may affect
the organisation to achieve their objectives
 Therefore, organizations must design and
create a safe environment in which business
processes and procedures can function
(control)
 An organization must choose one of four
basic strategies to control risks :
◦ Avoidance: applying safeguards that eliminate or
reduce the remaining uncontrolled risks for the
vulnerability
◦ Transference: shifting the risk to other areas or to
outside entities
◦ Mitigation: reducing the impact should the
vulnerability be exploited
◦ Acceptance: understanding the consequences and
accept the risk without control or mitigation
 Risk appetite - defines the quantity and
nature of risk that organizations are willing to
accept, as they evaluate the trade-offs
between perfect security and unlimited
accessibility
 Residual risk - When vulnerabilities have
been controlled as much as possible, there
is often remaining risk that has not been
completely accounted for
 The technique is developed in 1987 that is
used by wide range of organisation worldwide
 Key feature is the tests and checks are done
by staff whose normal day-to-day
responsibilities are within the business unit
being assessed
 Benefits claimed include creating a clear line
of accountability for controls, reducing the
risk of fraud and the creation of an
organisation with a lower risk profile
 To implement control self-assessment it
needs to document whole organisation
control processes and identifying suitable
ways of measuring or testing each control
 Common methodologies used are:
◦ Internal control self-questionnaires self audit
◦ Customize questionnaires
◦ Interview techniques
 False representation of fact
 knowledge of the falsity by party making
false representation
 intent to deceive the party by making false
representation
 reasonable reliance by the innocent party
 actual loss suffered by the innocent party
 What is corruption?
◦ It is misuse of entrusted authorities for personal gain
 Elements of corruption:
◦ Misuse of assets for personal benefits
◦ Passive bribery (accepting bribe)
◦ Active bribery (offering bribe)
◦ Trading in influence (misuse of authority by accepting
bribe)
◦ Fraud in the conduct of official duty for personal gain
◦ Revealing business secret for personal benefits
 Internal control weaknesses:
◦ Lack of segregation of duties
◦ Lack of physical safeguard of assets
◦ Lack of independent check
◦ Lack of proper authorisation procedures
◦ Overriding of existing control
 Accounting Anomalies
◦ Unusual deviations from standard accounting
practices, resulting in irregularities in the
accounting system
◦ Anomalies in documents, reconciliations, journal
entries, financial statements
 Operational anamalies
◦ Unusual relationships, procedures, and events
concerning the company’s operations
◦ Transactions/situations involving unexpected
times, places, people, amounts, or frequencies
 Behavioral anomalies
◦ Living beyond means
◦ Financial difficulties
◦ Control issues
◦ Close association with vendors/customers
 Obtained testimonial evidence via interview
and interrogate individuals
 Obtained documentary evidence such as
business records and documentations
 Obtained physical evidence such as bank
slips, physical assets etc