MALAYSIAN INCOME TAX - AN OVERVIEW

Taxation in various forms has existed for a long time. The feudal system of paying the landlords in kind,
through goods and labour, is not really different from paying taxes to the government today. In this age of
fiscal policies, income tax is a fact of life. Malaysian taxpayers could look on the bright side - Malaysia is a tax
haven of sorts - there is no capital gains tax in this country; no gift, inheritance nor estate taxes in Malaysia.
The only form of capital gains tax in Malaysia which is the Real Property Gains Tax has been withdrawn for
disposals made on or after 1 April 2007.

What falls under Malaysian income tax?

Malaysian income tax is 'territorial'. This means that only income accruing in or derived from Malaysia is
taxed. Any foreign income remitted into Malaysia by both resident and non-resident is exempt from tax.

What are the categories of income liable to tax?

There are generally 6 categories of income as delineated by section 4 of the Income Tax Act, 1967:

a) Gains or profits from business

b) Income from employment
c) Dividends, interest and discounts
d) Rents, royalties or premiums
e) Pensions, annuities or other periodical payments
f) Gains or profits not falling under any of the above

Self assessment and filing of returns

Self-assessment for individuals was implemented from YA2004. Under the Self Assessment System (SAS),
the taxpayer himself is responsible to correctly compute the amount assessable, file the return and make
payment of any tax due and payable within the stimulated dateline.

Forms

Employment income only BE

Business income and/or other income B

Dateline

With business income 30 June

Without business income 30 April
Computation of Chargeable Income

Gross Income
Less: Allowable expenses
Less: Double deduction of expenses
Adjusted Income
Add: Balancing Charge
Less: Capital allowances and balancing allowance (up to
adjusted income, excess to be carried forward)
Statutory Income
Less: Previous years’ business losses
Add: Statutory income from other sources
Aggregate Income
Less: Current year business losses
Less: Approved donations
Less: Zakat perniagaan
Total Income
Less: Personal Reliefs
Chargeable Income

Tax residency

An individual is regarded as a tax resident if he is in Malaysia for any of the following periods:

ƒ at least 182 days in a calendar year

ƒ a period of less than 182 days but that period is linked to another period following or preceding where
he was present in Malaysia for 182 or more consecutive days
ƒ 90 days or more during the year and he was present in Malaysia for at least 90 days in any 3 of the 4
immediate preceding years; or
ƒ he is a resident for a particular year if he is resident for the immediate following year and for each of 3
immediate preceding year

The tax residential status of an individual is important because it determines:

ƒ his rate of tax

ƒ if he is entitled to personal reliefs and rebates
ƒ the income on which he is taxed
Income Tax Rates

• Resident Individuals
(w.e.f. the Year of Assessment 2002 onwards)

Chargeable Tax Rate

RM Tax Payable (RM)
Income (%)

On the first 2,500 0 0

On the next 2,500 1 25
On the first 5,000 25
On the next 15,000 3 450
On the first 20,000 475
On the next 15,000 7 1,050
On the first 35,000 1,525
On the next 15,000 13 1,950
On the first 50,000 3,475
On the next 20,000 19 3,800
On the first 70,000 7,275
On the next 30,000 24 7,200
On the first 100,000 14,475
On the next 150,000 27 40,500

On the first 250,000 54,975

In excess of 250,000 28

Joint or Separate Assessments

With the amendment to Section 45(2) of the Income Tax Act, 1967, a wife is automatically assessed
separately on her income, unless the husband or the wife elects in writing before 1 April each year for their
income to be jointly assessed. Where the spouse is not resident, he or she may make the election only if he
or she is a citizen.

Under combined assessment, a wife just as a husband, will be given a spouse relief of RM3,000 (and a
further RM3,500 if the spouse is disabled) if the spouse elects for joint assessment under his or her name, or
the spouse has no source of income.

(Source: Budget Commentary & Tax Information 2009, PWC Tax Booklet 2007-2009, www.lhdn.gov.my,
www.kpmg.com.my)