SCOPE OF CHARGE

•Section 3 ITA 1967:

  “ Subject to and in accordance with this Act, a tax to be known as income tax shall be charged for each YA upon the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia.”

•Therefore, income tax liability arises when:

  i. the transaction is ‘income’ in nature   and   such   income is accrued in or   derived from Malaysia; or

  ii. the transaction is ‘income’ in nature   and   it is received in Malaysia from   outside Malaysia

•Income tax would be imposed by reference to a YA upon a person’s income. Such person is known as chargeable person.

Self- Assessment System

•A method whereby a taxpayer is responsible for calculating his own tax and making payment within the specified period.

•Taxpayers are given the onus to self- assessing and self-paying their income tax.

•Based on the “SELF ASSESS, PAY AND FILE’ concept (IRB Annual Report, 1998,p.100)

•Self Assessment is a total process change from the previous formal assessment system. Under the formal assessment system, taxpayers are required to declare their incomes in the Return Form, submit the Return Form to the Inland Revenue Board (IRB) and the IRB will then raise the assessment.

•The Notice of Assessment is sent to the taxpayer and based on the tax raised in the Notice of Assessment, payment must be made accordingly.

•Consider as the first step towards modernizing the national tax administration system.

•Embrace to the new system known as ‘Electronic Tax Filing System (e-filing)’ as to integrate with the electronic government concept.

•Introduce for corporate taxpayers on 2004 and for individuals on 2006.

•Under the Self Assessment System, taxpayers are still required to complete and submit Return Form by the required dates. Taxpayers will have to calculate their own tax and make payment of the full amount.

•In the case of an employee, the Schedular Tax Deduction Scheme will continue to apply i.e. tax will be deducted from the monthly salary and remitted to the IRB by the employer.

•The purpose of Self Assessment is to modernize and upgrade the tax administrative system in the country. It creates an efficient tax system, speeds up the collection of tax and improves the rate of tax compliance.

 

DEVELOPMENT & CHANGES IN MALAYSIAN TAXATION

•Prior to 2000, income tax is assessed on the income earned in the preceding year and is assessed by the IRB according to the official assessment system; and known as preceding year assessment (PYA)

•Effective on year 2000 onwards, Current Year Assessment (CYA) system being used to assess the income tax based on the income earned in the current year. It means that income derived in year 2000 will be assessed and liable to tax in the year 2000.

•Due of that, Self- Assessment System (SAS) being introduced; where the taxpayer works-out and pays his own income tax.

•Why?

  i. to improve voluntary tax compliance

  ii. To reduce administrative cost/ lessen burden of the IRB

  iii. To enable prompt collection of taxes

OBJECTIVE OF TAXATION

•‘Taxes are what we pay for a civilized society’ (Justice Holmes)

•Taxation :

•Avenue for government to raise funds to finance public expenditures, such as healthcare, education and national defence.

•Principal means by which governments can attempt to redistribute of income and wealth in building a civilized society through various social allocations.

•It then redistributed amongst the public in such a way to build public amenities, and to provide support to pensioners, the unemployed, the sick & the welfare beneficiaries.

•Taxation acts a tool of good governance, allowing economies to grow while helping to improve society as a whole.

•Moreover, taxation also used to broader socio-economic purpose (for e.g. to maximize economic stability in order to reduce inflation, unemployment, etc.)

•Therefore, it is meant for revenue, growth and equity.

Benefit in kind (BIK)

What is Benefit in kind?
a. Paragraph 13(1)(b) of the Act provides that the gross income of an employee from an employment also includes any amount equivalent to the BIK provided to the employee by/on behalf of his employer to be personally enjoyed by that employee.

b. BIKs are benefits not convertible into money, even though they have monetary value. The phrase "not convertible into money" means that when the benefit is provided to the employee, that benefit cannot be sold, assigned or exchanged for cash either because of the employment contract or due to the nature of the benefit itself.

c. All BIKs received by an employee are taxable except:
i. medical, dental or chld-care benefit

ii. a benefit consisting of
    aa) leave assage in Malaysia of not more than 3 times in one calendar year; or
    bb) oversea leave passage of not more than once in any calendar year limited to a maximum amount of RM 3,000.
The exemption of this benefit is only applicable if it is provided to the employee and members of his immediate family.

iii. benefit used by the employee solely for purposes of performing his employment duty.

d. Non-taxable benefits include:-
i. Goods and services offered at discounted prices.
ii. Dental benefit
iii. Childcare benefit
iv. Food and drink provided free of charge
v. Free transportation between pick-up points or home and the place of work (to and fro)
vi. Insurance premium which are obligatory for foreign workers as a replacement to SOCSO contributions
vii. Group insurance premium to cover workers in the event of an accident.

Tax Audit

Under the Silf Assessment System, tax audit is a primary activity of the Inland Revenue Board of malaysia. It aims to enhance voluntary compliance with the tax laws and regulations. A taxpayer selected for an audit does not necessarily mean that the taxpayer has committed an offence.

What is a tax audit?
A tax audit is an examination of a taxpayer's business records and financial affairs to ascertain that the amount of tax reported and paid are in accordance iht tax laws and regularations. The IRB carries out two (2) tyoes of audit, namely desk audit and field audit.

Desk audit
a. A desk audit is carried out at the IRB's office. Desk audits are normally concerned with straight forward issues or tax adjustments which are easily dealt with via correspondence. A taxpayer may be called for an interview at IRB's office if any additional information is required.

b. It involves checking all information on income and expenses as well as various types of claims mae by a taxpayer in his income tax return.

c. Specific desk audit cases can be referred for field audit action where the taxpayer will be informed through a field audit notification letter as part of the normal process of commencing the field audit.

Field Audit
A field audit is one that takes place at a taxpayer's premise. It involves the examination of the taxpayer's business records. In the case of a sole-proprietorship or partnership, if the taxpayer's business records are imcomplete it may involve the examination of non-business records such as [ersonal bank statements, etc. A taxpayer will be given notice prior to a field audit.

Objective of Tax Audit
The main objective of tax audit is to encourage voluntary compliance with the tax laws abd regulations and to ensure that a higher tax compliance rate is acheved under the Self Assessment System. In this regard, the audit officer is required to ensure that the correct amount of income is reported and the right amount of tax is paid in accordance with the tax laws and regulations.

Form E and EA/EC

Every employer is required to prepare ad submit a return each year (Form E) to the Director General not later than 31 march in the year immediately following the relevant year containing;
a. Number of employees
b. Number of employees subject to schedular tax deductions scheme.
c. Number of new employees employed.
d. Number of employees resigned.
e. Number of employees resigned and left Malaysia.
f. Such other details as may be required by the Director General.

Every employer shall for each year prepare and render to his employees a statement of remuneration (Form EA/EC) of that employee by end of February in the year immediately following the relevant year containing;-
a. relevant particular of the employee.
b. full amount of gross employement income.
c. pension,annuity or periodical payments.
d. total amount of taxdeductions made on employement income.
e. compulsory contribution to EPF or any other approved fund or scheme.
f. details of payment of arrears for prior years employement income.
g. exempt allowances perquisitions, gifts and benefits.
h. such other particulars as may be required by the Director General.

Income Tax Scale for the year assessment 2015

Tahun Taksiran 2015

Banjaran Pendapatan Bercukai	Pengiraan (RM)	Kadar %	Cukai(RM)
0 - 2500	2,500 pertama	0	0
2,501 - 5,000	2,500 berikutnya	0	0
5,001 - 10,000	5,000 pertama 5,000 berikutnya	1	0 50
10,001 - 20,000	10,000 pertama 10,000 berikutnya	1	50 100
20,001 - 35,000	20,000 pertama 15,000 berikutnya	5	150 750
35,001 - 50,000	35,000 pertama 15,000 berikunya	10	900 1,500
50,001 - 70,000	50,000 pertama 20,000 berikutnya	16	2,400 3,200
70,001 - 100,000	70,000 pertama 30,000 berikutnya	21	5,600 6,300
100,001 - 150,000	100,000 pertama 50,000 berikutnya	24	11,900 12,000
150,001 - 250,000	150,000 pertama 100,000 berikutnya	24	23,900 24,000
250,001 - 400,000	250,000 pertama 150,000 berikutnya	24.5	47,900 36,750
Lebih 400,000	400,000 pertama setiap ringgit berikutnya	25	84,650 ..........

Adapted from : http://www.hasil.gov.my/goindex.php?kump=5&skum=1&posi=2&unit=5000&sequ=11

Real Property Gain Tax

1.0 Introduction of Chargeable Asset

A chargeable asset includes real property and shares in real property companies. Real property is defined as " any land situated in Malaysia and any interest, option or others right in or over such land".
Land includes:
a. the surface of  the earth and all substance forming that  surface
b. the earth below the surface and substances therein
c. buildings or structures attached to land
d. standing  timber, crops and other vegetation growing on land, and
e. land covered by water

2.0 Who is Chargeable (section 6 and Schedule 1 of the RPGT Act 1976)

- every person whether resident or non resident in Malaysia, is chargeable in respect of any chargeable gains he has made on the disposal of a chargeable asset.
- partnership
- incapacitated person
- non residents
- rules and ruling chiefs
- companies
- A Hindu Joint Family
- executors
- trustees

3.0 Disposal Price

The disposal price of an asset is the consideration received less any of the following expenses:
a. expenses wholly and exclusively incurred in enhancing or preserving the value of the asset such as alterations, improvements or extensions.
b. expenses incurred, after acquiring the asset, in respect of preserving or defending the title to the asset.
c. incidential expenses relating to the disposal of the asset (fees, commissions, lawyers, surveyours)
d. advertising costs to find buyers.

4.0 Acquisition Price

The acquisition price of an asset is the consideration paid plus any incidential costs or expenses that are relevant such as:
- fees, commissions, remuneration paid for professional service, e.g. accountants, lawyers, surveyours, architects.
- costs of transfer, e.g. stamp duty
- cost of advertising to attract sellers.

Any revenue expenses that can be claimed under ITA 1967 will not rank for deduction in arriving at the acquisition price, such as interest on money borrowed to buy the propertyy. sch 2, Paragraph 4 also provides that in computing the acquisition price, the following receipts must be deducted:
a. compensation or similar receipts for any damage, injury or destruction to the asset.
b. receipts under an insurance policy for any damage, injury to the asset.
c. any deposits forfeited in respect of the asset.

5.0 Chargeable Gains

- chargeable gains = disposal price > acquistion price
- allowable loss = disposal price < acquisition price
- real property gains tax is computed on a scale rate depending on the ength of ownership of the chargeable asset.
- the  relief for allowable loesses is given as a deduction from the total tax assessed on the chargeable gains of a taxpayer for the y/a in which the lost arises.

Any amount of unabsorbed tax relief for losses may be carried forward to future years. The tax relief for losses is computed at the rate of tax applicable to the category of disposal giving rise to the loss.

Partnership Taxation

Partnership Taxation

Definition of partnership under Income Taxation Act 1967:

The Income Tax Act 1967 defines partnership as “an association of any kind (including joint venture, syndicates and cases where a party to the association is itself a partnership) between two or more parties who have agreed to combine any of their rights, power, property, labor or skill for the purpose of carrying on a business and sharing the profits or losses there form, but exclude Hindu Joint Family although such a family may be a partner in a partnership.”

In the definition of a “person” in Income Tax Act 1967, partnership is not listed as a “person”, thus no assessment can be raised on the partnership. However individual partners can be assessed on their share of income.

Types of partners

1.      Full partners

2.      Limited partners

3.      Salaried partners

4.      Sleeping partners

5.      Corporate partners

Assessment of partners

Net profit before taxation                                                                                           xxx

Add:    1. Partners’ remuneration                                                        xx

            2. Partner’s interest on capital or advanced                            xx

            3. Private and domestic expenses of partners                         xx

            4. Any item (Not Allowable) / Expenses Not Allowed          xx

 by Partnership Business

Less:    Other incomes (as in financial statement)

-          Other incomes (not from core of business)                             xx

-          Real Property Gain                                                                 xx

-          Statutory Income of Dividend, Rental and Interest               xx

-          Profit on disposal of  assets                                                    xx                    (xx)

Less: Double Deduction (disabled workers, R&D, insurance for ex/imp)                 (xx)

PROVISIONAL ADJUSTED INCOME                                       xxx

Less: Items under Section 55 (3) (show the calculation)

1.      Partners’ remuneration (Salary, Allowance, Bonus)

Partner A/B/C                                                                         (xx)

2.      Partner’s Interest on capital or advanced

Partner A/B/C                                                                         (xx)

3.      Private and domestic expenses, if any, of a partner

Partner A/B/C                                                                         (xx)

DIVISION INCOME                                                                       XXX

(Divide based on agreement or sharing profits and loss equally)

Computation of Statutory Income

	Partners
	A	B	C
Partners’ remuneration (Salary, Allowance, Bonus) Partners’ interest on capital or advanced Private and domestic expenses of a partner Divisible Income ADJUSTED INCOME (PARTNERS) Add:   Balancing Charge [divide equally or based on agreement – for partners who are remained in partnership] Less:    Balancing Allowance / Capital Allowance [divide equally or based on agreement – for partners who are remained in partnership] Sec 4(a) : Statutory Income of Partnership Business Add:       Other Incomes (from other sources) Sec 4(b): Statutory Income of Salary Sec 4(c): Statutory Income of Dividend & Interest Sec 4(d): Statutory Income of Rental & Royalty Sec 4(e): Statutory Income of Pension & Annuity Sec 4(f): Other than sec 4(a)-(e) AGGREGATE INCOME (-) Donation for approval institution [7% or paid up – lower] TOTAL INCOME Less:     Personal Relief Tax payer (RM 9000) Spouse / wife / husband (RM5000) Children (1000/4000/9000/5000) Insurance & etc CHARGEABLE  INCOME	X X X X XX X X XX X X X X X XX X XX X X X X XXX	X X X X XX X X XX X X X X X XX X XX X X X X XXX	X X X X XX X X XX X X X X X XX X XX X X X X XXX

Preparation of Form P

Form P is partnership return form. This form is prescribed under section 152 Income Tax Act 1967. The precedent partner is responsible to submit a partnership return or returns of income. The precedent partner is the person whose name appears as the first name in the partnership agreement.

Changes in partnership

When a partner withdrew from the partnership or a new person is admitted as partner into the existing partnership, this would tantamount to a cessation of old partnership and commencement of new partnership.

Thus the business will be divided into two different partnership businesses which are:

a.       Before new admit or retirement – old partnership

b.      After new admit or retirement – new partnership

The changes will effect as follows:

a.       Changing in period of accounting

b.      Changing in sharing of profits and loss

c.       Changing in capital contribution

d.      Changing in partner salary and interest on capital

Allocation of capital allowance among the partners

a.       Although the partnership is assessed as business source, capital allowance claim is attributable to the individual partners of the partnership.

b.      The capital allowance is allocated with reference to the profit sharing ratio of the partner at the end of each basis period.

c.       Admission or retirement of partners will not affect the claim of capital allowances as the partnership is treated as a continuing business if at least one partner of the old partnership continues to be partner in the new partnership.

d.      Since capital allowance is computed at the year end, new partner admitted would enjoy full year capital allowance; a retired partner would not get any capital allowance in the year of withdrawal.