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Rationale for inclusion of the course in the program:
The Basic of Malaysian Taxation introduces students to the
taxation and provides the core knowledge of the underlying
principles and major technical areas of taxation, as they
affect the activities of individuals and businesses.

Students are introduced to the rationale behind and the

functions of the tax system. This course covers income tax for
individual.

Having covered the core areas of the basic taxes, the student
should be able to compute tax liabilities, explain the basis of
their calculations, apply tax planning techniques for
individuals and identify the compliance issues for each major
tax through a variety of incomes and personal scenarios and
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Assessment Methods and Types Coursework
Continuous assessment – 60% (20 + 20)
Quizzes = 20%

Mid Term Examination - 20% = 100 marks

[Chapter 1 – 4]

Final Examination – 60% = 100 marks

[the remaining chapters as per course outline]

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PURPOSE LEARN THIS SUBJECT
1- BE ABLE TO COMPUTE:
a) PERSONAL TAX : 40 MARKS
b) PARTNERSHIP TAX : 10 – 20 MARKS
2- CAPITAL ALLOWANCE
3- INDUSTRIAL BUILDING ALLOWANCE

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 Chapter 1:
Taxation and
Scope of Charge

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Learning outcome:
By the end of this topic, you should be able to:
1. Explain the scope of charge for taxation;
2. Analyse the types and sources of income with regard to
taxation; (INCOME / CAPITAL)
3. Explain who a chargeable person is; (siapa yang perlu
bayar tax)
4. Analyse the year of assessment for individual taxpayers;
(kenal pasti YOA bagi pembayar tax)

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Terms
1- Mutually exclusive = they cannot occur at the same time.
An example is tossing a coin once, which can result in
either heads or tails, but not both.
(Tidak boleh berlaku serentak)

2- Exhaustive = Treating all parts or aspects without omission

(menyeluruh)

“use dictionary and improve your vocabulary”

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Introduction
• Tax in Malaysia is governed by Income Tax 1967
(ITA 1967)
• S3 in ITA 1967 is about “scope of charge” as provided in S3 of the
act in order to be liable to income tax.
• Not within ambit of Section 3, - NO TAX

1. What is a tax?
• Oxford Dictionary defines:
“contribution levied on persons, property or business for
the support of government”

Bayaran yang dikenakan terhadap individu, harta atau

perniagaan bagi membantu kerajaan.

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1. What is a tax?***
• Two definition from Australian cases:
1- a compulsory exaction of money by a public authority for
public purposes enforceable by law; (in Mathews v The
Chicory Marketing Board)
Tuntutan wajib berbentuk wang oleh pihak berkuasa bagi
tujuan untuk rakyat dikuat kuasakan oleh undang-undang)

2- the process of raising money for the purposes of

government by means of contributions from individual
persons. (in R v Barger)
Proses mengumpul wang untuk kerajaan atas sumbangan
individu

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The High Court of Australia ; identified the following
usual characteristics of a tax: ***
(ciri-ciri cukai)

• It is a compulsory payment; (bayaran wajib)

• the money is raised for government purposes;
(duit yg dikutip utk kerajaan)
• the exactions do not constitute payment for services rendered;
(bukan pembayaran perkhidmatan)
• the payment are not penalties; (bayaran bukan denda)
• the exactions (tuntutan) are not arbitrary (penimbang tara); and
• the exactions (tuntutan) should not be incontestable (tidak boleh
dicabar).

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OBJECTIVES OF TAX POLICIES***
(matlamat polisi percukaian)
a) Raising revenue to finance government expenditure.
(meningkatkan hasil bagi menampung perbelanjaan kerajaan)

b) Ensuring that taxes are collected effectively and at minimum cost

both to the government and tax payers. (memastikan cukai dikutip
secara cekap dan pada kadar kos yang minimum pada kerajaan
dan pembayar cukai)

c) Regulating the private sector of economy to maintain the desired

level of employment and increase economic development / growth.
(menguatkuasa undang-undang pada sektor swasta, memastikan
jumlah pekerjaan dan meningkatkan pembangunan ekonomi)

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OBJECTIVES OF TAX POLICIES

d) Regulating the activities of specific areas of the private sector so as

to encourage activities which are beneficial to the country and to
encourage those which are desirable in the national interests.
(menguatkuasa undang-undang pada sektor swasta, menggalakkan
aktiviti2 yang memberi faedah pada negara)

e) Regulating the distribution of income and wealth between different

types and classes of citizens. (Menyelaraskan agihan pendapatan di
kalangan penduduk)

f) Regulating specific activities of citizens which are thought to be

undesirable, e.g, drinking, smoking, gambling. (menguatkuasa
aktiviti tertentu yang dikira sebagai tidak dikehendaki contoh
minimum keras, rokok, perjudian)

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Taxes are split into 2 broad classifications:***

a) DIRECT TAXES: direct charge the tax to the taxpayer.

(Cukai yang dikenakan terus pada pembayar cukai)
Eg: Income tax, real property gains tax (RPGT), estate duty.

b) INDIRECT TAXES: tax collected by third parties.

(Cukai yang dikutip oleh pihak ketiga)
- additional price of product/service is collected by an
intermediary. (harga tambahan ke atas barangan/ perkhidmatan
yang dikutip oleh orang tengah)
- Eg: sales tax, service tax, excise duty, import and export duties
and value added tax/goods and services tax (GST).

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 PROGRESSIVE

Direct taxes fall

into three
PROPORTIONAL
categories:

REGRESSIVE

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Direct taxes fall into three categories:
a) PROGRESSIVE – as income rises, as amount of tax
increase. M’sian personal income tax is a progressive
tax. (berhubungan positive: pendapatan bertambah
jumlah cukai yang dibayar juga bertambah)

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Direct taxes fall into three categories:
b) PROPORTIONAL (berkadaran) – take same the same proportion of
income at all levels.

The M’sian corporate income tax, 20-24% or foreign personal income tax.
(Cukai pendapatan syarikat BERKADARAN , 20-24% % tanpa mengikut
sama ada pendapatan syarikat naik atau turun)

Companies with paid up capital ≤ RM2.5 million (at the beginning of YA)
Chargeable income YA2009 – YA2014 RATE
≤ RM500,000 20%
Excess RM500,000 25%

Companies with paid up capital > RM2.5 million (at the beginning of YA)
YA2009 – YA2014 RATE – 25%

E.g: Chargeable income company RM1,000,000,000

So tax payable = 25% x RM1,000,000,000 = RM250,000,000
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Direct taxes fall into three categories:
c) REGRESSIVE (pengunduran) - decreasing proportion A
tax that takes a larger percentage from low-income people
than from high-income people. A regressive tax is generally
a tax that is applied uniformly. This means that it hits
lower-income individuals harder.

For example,
If a person has RM10 of income and must pay RM1 of tax
on a package of cigarettes, this represents 10% of the
person's income.
However, if the person has RM20 of income, this RM1 tax
only represents 5% of that person's income.

Please check this:

http://www.investopedia.com/terms/r/regressivetax.asp
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 AD-VALOREM

Indirect taxes
fall into two
categories:

SPECIFIC RATE

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Indirect taxes fall into two categories:
a) AD-VALOREM – [Fixed Percentage – peratus tetap]
- where the tax is based on value.
- a “fixed percentage” of the tax value of transaction
is absorbed as taxation.
- Eg: tax – fixed 10% is imposed on certain
GST – fixed 6%

b) Specific rate (Kadar tetap)

- where a specific monetary amount is levied on each
units.
- Eg: import duties – RM100 imposed on certain goods.
(Refer: http://tariff.customs.gov.my/)

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Three sources of revenue laws:
a) Statue Law – Income Tax 1967;
b) Case Law – court decision
c) The Practice of Inland Revenue – Public Ruling, Assessment,
Enforcement practices.

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“Scope of charge – S3”
a) Income in nature – “accrued” and “derived” in Malaysia
(Pendapatan “DIPEROLEHI” di Malaysia)
b) Income in nature – received in M’sia from outside
Malaysia (Foreign Source Income)
diterima di Malaysia dari pendapatan luar negara.

Paragraph 28, Schedule 6***

BUT, (b) starting from YA 2004: FOREIGN SOURCE
INCOME exempted from tax EXCEPT, you work with
RESIDENT COMPANY in “bank”, “insurance”,
“shipping” or “air transport”.

Bermula tahun 2004 pendapatan luar negara yang diterima di

Malaysia dikecualikan dari membayar cukai KECUALI mereka yang
bekerja dengan syarikat resident Malaysia dalam sektor bank,
insuran, perkapalan dan pengangkutan udara di luar negara.
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 Examples:

Taxable
1. You worked with CIMB at Mauritius Office, salary
bring back to Malaysia

2. You worked with Sunway Construction in

Abu Dhabi salary bring back to Malaysia

3. You worked with MAS in France, salary bring

back to Malaysia

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1.1 Sources of income
• Act does not define the income mean.
(always contest by taxpayer – company)
• But, categories income under S4 and S4A as follows:

SECTION 4 - RESIDENT***
SECTIONS INCOMES
4 (a) gains or profits from a business, for whatever period of time
carried on; (KEUNTUNGAN PERNIAGAAN)
4 (b) gains from an employment (KEUNTUNGAN PENGAJIAN)
4 (c) dividends, interests, discounts (DID)
4 (d) rents, royalties, premiums (RRP)
4 (e) pensions, annuities (unit trust) or other periodical payments.
4 (f) gains or profits not falling under any of the foregoing paragraphs.

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SECTION – 4(a)
4 (a): gains or profits from a business, for whatever period
of time carried on;

- GAINS or PROFITS (UNTUNG)

- Not sales of turnover (BUKAN JUALAN)
- That why company tried to minimise company “PROFIT”
tax on PROFIT
- How: creating a lot of expenses, expense ALL
- Sdn Bhd company: directors buying everything using
company fund.
- Berhad: gives staff bonus, company trip, ESOS

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SECTION – 4(b) - (KEUNTUNGAN PENGAJIAN)
4 (b): gains from an employment

• S13 (1)(a)
• S13 (1)(b)
• S13 (1)(c)
• S13 (1)(d)
• S13 (1)(e)

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 SECTION 4A – SPECIAL CLASSES OF INCOME***
• FOR NON RESIDENT

i) Person or employee has housing benefit provided by

employer, income earned from working of installation or
operation any plant, machinery or other apparatus
(equipment) purchased.
(non resident yang dapat faedah rumah yang disediakan oleh
majikan, income dari pemasangan atau operasi kilang, mesin
atau peralatan)

ii) Amount paid for technical advise, assistance or service

rendered with technical management or administration of any
scientific, industrial, commercial or venture project.
(non resident yang mendapat pendapatan dari beri nasihat
teknikal, pengurusan teknikal atau pengurusan saintifik
industri, komersial atau projek baru)

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 SECTION 4A – SPECIAL CLASSES OF INCOME
• FOR NON RESIDENT

iii) Rent or other payments, not being payments of film’s

rentals, made under any agreement or arrangement for
the use of any moveable property,
(non resident menerima sewa atau bentuk bayaran,
(tetapi bukan sewaan film), sewa dan bayaran tu adalah
harta yang boleh alih. (sewakan kereta) atau sewakan
harta (kediaman atau commercial)

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2.0 INCOME OR CAPITAL (PENDAPATAN DAN MODAL)

• Differentiate between income and capital

(bezakan antara pendapatan atau modal).

• Income tax on “income” [pendapatan]

(cukai dikenakan ke atas pendapatan)

• NOT on capital gains [keuntungan modal]

(bukan keuntungan modal)

• Since act don’t define income – so referred case law.

Differentiate by characteristics.
(Akta tak nyatakan maksud pendapatan so ia sentiasa di
cabar di mahkamah)

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2.0 INCOME OR CAPITAL (PENDAPATAN DAN MODAL)

• Income (pendapatan):
a) repetitive (berulangan)
b) flow from source of income (pengaliran)
c) received in ordinary course of business (diterima dari
urus niaga perniagaan / operasi)

• Capital gains:
a) buying assets – then sell it (beli harta dan jual)
b) 1 time event – jarang-jarang berlaku

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Examples:
1.1: Music composer, buying jewelry then sell, earn profit.
Answer = NOT TAXABLE

1.2: Lawyer by profession, play stock market, then gains

profit RM150,000.
Answer = NOT TAXABLE

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Income and capital receipts***

INCOME RECEIPTS ; CAPITAL RECEIPTS:

CHARGEABLE to income tax
a) Provision of services
(menyediakan perkhidmatan)
b)Sale of goods/trading stock
(jualan barangan / stok)
c) Trading or adventure in the
nature of trade (dagangan)
d) Sale of short-term investment
(pelaburan jangka masa pendek)
NOT CHARGEABLE to income
tax
a) Gift (hadiah)
b) Profit from disposal of long term
investment (keuntungan dari
pelupusan pelaburan jangka
panjang)
c) Speculation, windfall gain
(aktiviti spekulasi)
d) Gambling (perjudian)
e) Sale of capital assets – (motor
vehicles, factory, plant &
machinery)
(penjualan aset modal)

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2.3 Offshore business
• S3B – Income derived by offshore company from offshore
business activity “IS NOT CHARGEABLE TO INCOME TAX”.
• Tax governing offshore business is Labuan Business Activity
Tax Act (LBATA 1990) NOT INCOME TAX ACT 1967.***
• Effective 2009, Offshore company can elect to be taxable
with 3% of their profit.

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3 - PERSON
• S2 – defines “PERSON” to be include
-individual
- company
- body of persons
- a corporation sole (sole proprietor)
• Body of persons – unincorporated bodies (not company)
included Hindu Joint Family (pls google
this) EXCLUDING PARTNERSHIP.
- Examples: Trust, Club, Trade Association,
Cooperative Societies.
• In partnership: Tax charges to individual partner.

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Example 1.4
•Donald Trumpet wrote a will to leave all his wealth to his
favorite cat, Emmey, upon his death.
•The income from the wealth accruing to the cat would be
subject to income tax.
•In this case, the tax authorities are empowered under the
Act to appoint agent for the collection of income tax on
income derived from the wealth.

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It is crucial to establish the concept of “person” because:
(i) Such person will be the “CHARGEABLE PERSON”
assessable to tax on his income derived from such
taxable activities;
[pihak yg dikenakan cukai drp pendapatan yang
diperolehi drp aktiviti yang dikenakan cukai]

(ii) The “TAX RATE” applicable to each category of

chargeable person varies, some are taxed at flat rate
while others are taxed at scaled rates or reduces rates.
[Kadar cukai pelbagai bergantung pada kategori, kadar
rata atau kadar skala]

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 Example 1.5

Income Tax Rate for the YA 2018

Rate
Paid up capital > RM2.5 million shares 24%
a) Company
Paid up capital ≤ RM2.5 million shares at the Chargeable income
beginning YA 1- ≤ RM500 K 18%
2- > RM500 K 24%
RESIDENT 0-28% Scaled rate
b) Individual
NON - RESIDENT 28% Flate rate

c) Trust 24% Flate rate

d) Club, Trade Association 0-28% Scaled rate

e) Co-operative Society 0-24% Scaled rate

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4.0 Accruing in or derived from
• Malaysia income tax system is founded on the “modified
territorial concept”.
• Income accrued in or derived from Malaysia will be taxable
regardless where you receive the money.
(Semua pendapatan yang “diperolehi di Malaysia dikenakan
cukai” tanpa mengira dimana anda menerima pendapatan
tersebut)

• TWO (2) important factors:

a) the accrued/derived test
b) the geographical boundaries of Malaysia

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5.0 Malaysia
• S2 of the Act defines “Malaysia” to mean:
• Malaysia would include:
a) Peninsular Malaysia
b) East Malaysia (Sabah & Sarawak)
c) Territorial waters of Malaysia
d) Sea-bed (sea floor) and subsoil (2 layers) of the Territorial
waters .
e) Any other areas – natural resources
(fishing and petroleum extraction)

(Why this definition is important?)

PLEASE GIVE YOUR OPINION

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7.0 Year of assessment – EMPLOYMENT INCOME
• Effective from 1 January 2000 moves towards the
implementation of CURRENT YEAR BASIS.
• The assessment of income tax to be concurrent with the
derivation (Example: income year 2014, assess also YA 2014)
• In taxation when refers to
Calendar Year = 1 Jan until 31 Dec
• YA 2018 = 1 Jan 2018 until 31 Dec 2018
• “Basis year” for YA 2018 = 1 Jan 2018 until 31 Dec 2018

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8.0 Basis period for INDIVIDUALS
• Self assessment was fully implemented in YA 2004.
• Basis period for individual is calendar year basis.
• Payment of tax and submission of tax return
not later than 30 April (Income from employment only –
Form BE).

Source:
https://e.hasil.gov.my/© 2019, Lili Susanti Samsurijal, All Rights
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Example 1.8 - Individuals
• SL Low operates a restaurant in Tanjung Karang since 2009
• She derives business income, dividend income and rental
income = considered as individual income
• Section 21 of the Act requires the basis period for all
sources of income to be on a calendar year basis:

YA 2018
4(a) Trading income 1.1.2018 – 31.12.2018
4(b) Dividend income 1.1.2018 – 31.12.2018
4(c) Rental income 1.1.2018 – 31.12.2018

SL Low (person) will submit FORM B

INCOME TAX OF AN INDIVIDUAL (RESIDENT WHO CARRIES
ON BUSINESS)

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 NOW B FORM MUST
SUBMIT ONLINE

Source:
https://e.hasil.gov.my/

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Example 1.9 - company, trust body and co-operative society
- NOT CALENDAR YEAR

• Soh Poh Sdn Bhd manufactures Pooh Toys and closes its
accounts to 31 December every year.
• The company also derives interest income and dividend
income.
• The basis period for YA 2018 will be YA 2018

4(a) Manufacturing business 1.1.2018 – 31.12.2018

4(c) Dividend income 1.1.2018– 31.12.2018
4(c) Interest income 1.1.2018 – 31.12.2018

Soh Poh Sdn Bhd will submit FORM C

INCOME TAX FORM FOR COMPANY
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Example 1.9 - company, trust body and co-operative society
- NOT CALENDAR YEAR

• Jaya manufacturing Sdn Bhd closes its accounts to 30 JUNE every

year.
• The company derives dividend income and rental income besides
its manufacturing business.
• The basis period for YA 2018 for the various sources would be:

YA 2018
4(a) Manufacturing business 1.7.2017 – 31.6.2018
4(c) Dividend income 1.7.2017 – 31.6.2018
4(d) Rental income 1.7.2017 – 31.6.2018

Jaya Manufacturing Sdn. Bhd. will submit FORM C

INCOME TAX FORM FOR COMPANY
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Example 1.9 - company, trust body and co-operative society
- NOT CALENDAR YEAR

• Jaya manufacturing Sdn Bhd closes its accounts to 31 January

every year.
• The company derives dividend income and rental income besides
its manufacturing business.
• The basis period for YA 2017 for the various sources would be:

YA 2018
4(a) Manufacturing business 1.2.2017 – 31.1.2018
4(c) Dividend income 1.2.2017 – 31.1.2018
4(d) Rental income 1.2.2017 – 31.1.2018

Jaya manufacturing Sdn Bhd will submit FORM C

INCOME TAX FORM FOR COMPANY
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Interpretations of cases
a) Hierarchy of Authority (hirarki kuasa)
- Court of Appeal
- Federal Court
- High Court
- Special Commissioners of Income

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Scope of charge for YA 2010 - 2017
INCOME

Offshore business activity carried Others (S 3)

on by offshore company (s 3B) –
Not chargeable to income tax

Malaysia accrued/derived Foreign source

Income (s 4, 4A) or Income received
in Malaysia from outside Malaysia

Resident bank, Others

Shipping, air transport, -Exempted from income
Insurance company tax
YA

Chargeable income
+
Chargeable person

Income tax liability

Resident?
Yes No
Scaled rates a) Flat Rate at 26%
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All Rights YA 2010 - 2014
CI ≤ 100K, 0% - 24% b) Flat Reserved
Rate at 25% (Sdn. BHD.)
CI >100K, flat at 26%
Scope of charge for YA 2010 - 2017

Resident?
Yes No
Scaled rates a) Flat Rate at 26%
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All Rights YA 2015
CI ≤ 400K, 0% - 24.5% b) FlatReserved
Rate at 25% (Company)
> 400K, flat at 25%
Yes No
Scaled rates a) Flat Rate at 28% (individual)
CI ≤ 400K, 0% - 26% b) Flat Rate at 24% (Company) YA 2016-2017
> 400K, flat at 28%
Tax planning on scope of charge

Scope of charge

or
a) Malaysian derived income b) Foreign source income
i) Income i) Income
ii) Accrued/deemed ii) Accrued/derived
derived from Malaysia Income tax from outside Malaysia
iii) Received is not iii) Received in M’sia
relevant
Exemption

Eliminate Tax
Yes

Eliminate Tax

YA

Others Company, trust body and co-operative

-Individual, unit trust society
-Trade Association i) Calendar year 31 Dec 2011
Calendar year basis or
i.e: 31 Dec ii) Non-calendar year (non 31.12
YA 2017: 1 Jan 2011 – 31 year-end)
Dec 2011
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Move to
Chapter 2

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