ITA 1967.pdf

Income Tax Act 1967 ATTENTION Taxation is a specialised subject. You are strongly advised to seek the advice of an approved Tax Agent when it comes to matters relating to taxation. Inland Revenue Board (IRB)  What is Income Tax? Th...

Income Tax Act 1967 ATTENTION Taxation is a specialised subject. You are strongly advised to seek the advice of an approved Tax Agent when it comes to matters relating to taxation. Inland Revenue Board (IRB)  What is Income Tax? The amount of income tax charged Government 2 3 to individuals and expenditure. companies varies. The income that you earn is taxed 1 4 Progressive system. by the government. Year of Assessment (YA) Calendar Section year 2 1 Jan to 31 Dec Scope of Charge Section 3 Income tax shall be charged for each year of assessment upon the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia. RESIDENCY STATUS Tax residence status is not granted automatically to Malaysian citizens and it has nothing to do with a person’s citizenship. Resident status is determined by reference to the number of days an individual is present in Malaysia. Generally, an individual who is in Malaysia for a period or periods amounting to 182 days or more in a calendar year will be regarded as a tax resident. 01 Resident individuals are taxed according to the tax rate and eligible for tax reliefs per §§45A to 49 of the ITA 1967. 02 Non-resident individuals are taxed at a flat rate of 30% and are not eligible to enjoy any reliefs.  Section 7(1)(a) He is in Malaysia in that basis year for a period or periods amounting in all to one hundred and eighty-two days or more.  Section 7(1)(b) He is in Malaysia in that basis year for a period of less than one hundred and eighty-two days and that period is linked by or to another period of one hundred and eighty-two or more consecutive days (hereinafter referred to in this paragraph as such period) throughout which he is in Malaysia in the basis year for the year of assessment immediately preceding that particular year of assessment or in that basis year for the year of assessment immediately following that particular year of assessment: Provided that any temporary absence from Malaysia— (i) connected with his service in Malaysia and owing to service matters or attending conferences or seminars or study abroad; (ii) owing to ill-health involving himself or a member of his immediate family; and (iii) in respect of social visits not exceeding fourteen days in the aggregate, shall be taken to form part of such period or that period, as the case may be, if he is in Malaysia immediately prior to and after that temporary absence. Section 7(1)(b) S7(1)(b) S7(1)(a) S7(1)(a)  Section 7(1)(c) He is in Malaysia in that basis year for a period or periods amounting in all to ninety days or more, having been with respect to each of any three of the basis years for the four years of assessment immediately preceding that particular year of assessment either— (i) resident in Malaysia within the meaning of this Act for the basis year in question; or (ii) in Malaysia for a period or periods amounting in all to ninety days or more in the basis year in question.  Section 7(1)(d) He is resident in Malaysia within the meaning of this Act for the basis year for the year of assessment following that particular year of assessment, having been so resident for each of the basis years for the three years of assessment immediately preceding that particular year of assessment.  Employment Income & Benefits Derivation: Employment income is regarded as derived from Malaysia and subject to Malaysian tax where the employee: is a exercises an director of a is on employment in company paid leave Malaysia. resident in Malaysia.  Derivation (cont.) performs duties outside is employed to work on Malaysia which are board an aircraft or ship incidental to the exercise operated by a person of an employment in who is resident in Malaysia. Malaysia. S13: General provisions as to employment income Any wages, salary, leave pay, Any amount Value of living commission, received for loss of accommodation bonus, gratuity, employment provided by allowance (subject to certain employer (VOLA) (whether in money exemptions*) or otherwise); Any amount Benefits in Kind received from a from employer pension or (e.g. cars, provident fund handphone) which is unapproved.  Paragraph 13(1)(b) of the ITA provides that the gross income of an employee 01 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. BIKs are benefits not convertible 02 into money, even though they have monetary value. The phrase not convertible into 03 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.  BIKs Tax Exemption BIK received by an employee pursuant to his employment are chargeable to tax as part of gross income from employment under paragraph 13(1)(b) of the ITA. However, there are certain benefits-in-kind which are either exempted from tax or are regarded as not taxable. Examples: Dental benefit. Child-care benefit. Child care centres provided by employers to their employees’ children. Food and drink provided free of charge. Free transportation between pick-up points or home and the place of work (to and from). Etc. In the case of accommodation provided by/on behalf of the employer to his employee, this benefit is not covered under paragraph 13(1)(b) of the ITA. Instead, it is specifically dealt with under paragraph 13(1)(c) of the ITA.  BIKs Tax Exemption (cont.) Tax exemption does not apply if the employee who was given BIK by the employer has control over his employer. For a company, the power of an employee to control is through the holding of shares or the possession of voting power in or in relation to that or any other company, or by virtue of powers conferred by the articles of association or other document regulating that or any other company, that the affairs of the first mentioned company are conducted in accordance with the wish of the employee. For a partnership, the employee is a partner of the employer, or For a sole proprietor, the employee and the employer is the same person.  Perquisites Perquisites are benefits in cash or in kind which are Taxable under convertible into paragraph 4(b) of the money received by ITA as part of the gross an employee from income from his employer or from employment under third parties in paragraph 13(1)(a) of respect of having or the ITA. exercising an employment.  Characteristics Received by an employee in In cash or in kind. If it is respect of an employment received in kind, such contract entered into by him 2 3 items must have money's or is given by the employer worth and are convertible or a third party voluntarily. into money 1 Perquisites can be 4 Atoperquisite is subject tax only if it arises in received regularly or respect of having or casually. exercising an employment.  Personal Tax Relief, Deductions, Rebates 01 Allow individual tax payer to reduce chargeable income. 02 Chargeable income affects what tax rate will be charged with, which can ultimately help reduce the amount of tax have to pay. Personal reliefs claim for YA2023 Personal reliefs claim for YA2023 Personal reliefs claim for YA2023 Personal reliefs claim for YA2023 Personal reliefs claim for YA2023 Tax Relief: example Total annual income: RM40,000. First RM35,000: RM600 RM5,000 @ 6%: RM300 (-) Total tax relief: RM11,600 Chargeable income: RM28,400 First RM20,000: RM150 Save RM8,400 @ 3%: RM252 https://www.hasil.gov.my/en/individual/individual-life-cycle/how-to-declare- income/tax-rate/  TAX DEDUCTIONS Donations, gifts, and Listed under a different contributions to a charity, part in income tax returns organisation, or government. 2 3 form and technically Members of professional reduces aggregate rather bodies who pay a than chargeable income. subscription fee/ 1 Similar to a tax relief as 4 Only applicable to Institutions, it also helps to reduce organisations, and the amount need to bodies recognised by pay tax.. IRB,  Tax Rebate Reduce the amount of tax Examples of tax rebates in charged, not your Malaysia include tax rebates for zakat/fitrah, tax rebates for chargeable income. individuals whose chargeable income is below RM35,000, and tax rebates for married couples with joint tax files.  Tax Rebate: example Total annual income: RM45,000. (-) Individual tax reliefs: RM9,000 (-) Lifestyle expenses tax relief: RM2,500 Chargeable income: RM33,500, Tax amount = RM555 (-) Tax rebate: RM400 (for individuals with a chargeable income below RM35,000) Tax payment = RM155 Schedular Tax Deduction  Schedular Tax Deduction STD is a system of tax recovery where employers make deductions from their employees' remuneration every month following a Schedule. This is mandatory, in that neither the employer nor employee has any choice in the matter. Any deviation from the requirements of the Income Tax (Deduction from Remuneration) Rules 1994 can only be made upon written authorization from the Board. 1. MTD/PCB calculator http://calcpcb.hasil.gov.my/pcb_calc_2024.php?&csrf=1720465d9d05a0cc3a17980&statwork=1 2. MTD/PCB Schedule Self-Assessment System (SAS)  Official assessment system (OAS) Official assessment system (OAS) means the assessment is made by the IRB and a notice of assessment (also known as Form J) is sent to the taxpayer stating the amount of tax due for a particular year of assessment. The taxpayer would pay based on this assessment. For a start, forms are issued to the taxpayers at the beginning of each year of assessment. Upon receiving the forms, taxpayers are required to follow the following steps. Once the return Form J will be sent Report income for forms have been to respective the preceding received by the IRB, taxpayers outlining calendar year or Taxpayers pay tax taxpayers will have the income accounting years, as per Form J. to wait for their particulars and the whichever assessments to be taxable amount of applicable. computed by IRB. the YA.  Self-assessment System (SAS) The introduction of a self-assessment basis of taxation involves a substantial shift of responsibility to the taxpayers in terms of their compliance obligation. The onus would be placed firmly on them to understand the law, interpret the law and apply it to their situation. It is up to the taxpayers to compute the tax that they owe based on the information they have provided on their taxable income and allowable expenditure. The tax return furnished by the taxpayers is deemed to be the notice of assessment. Tax returns would, therefore, not be subject to detailed technical scrutiny by the IRB as in the OAS.  Self-assessment System (SAS) The taxpayer calculates and submits the assessment. This system assumes the taxpayer has the appropriate tax knowledge to calculate his income tax. In this system, a notice of assessment (Form J) would not be issued because the taxpayer assessment is assumed to be the notice of assessment. A taxpayer is to pay the income tax amount based on his computation. SAS is essentially an approach whereby taxpayers are required to determine their taxable income, compute their tax liability and submit their tax returns based on existing tax laws and policy statements issued by the tax authorities.  Self-assessment System (SAS) Under the SAS, the revenue authority would be involved in an expanded programme of checking and verifying tax returns on a post-assessment basis. This is particularly by way of tax audits and the implementation of a penalty system to enforce compliance with the tax law. These will allow revenue officials to “enquire into returns” for the next six years following the filing period. They will also be able to demand taxpayers to produce records that they may “reasonably require” for them to verify the tax returns. Self-assessment System (SAS) – the benefits ENSURING COMPLIANCE Self-assessment tax plays a vital role in ensuring tax compliance as taxpayers are accountable for determining their tax liabilities accurately, thereby reducing the chances of underreporting or evasion. TIMELY REVENUE COLLECTION By shifting the responsibility of tax calculation and payment to the taxpayers, the government can ensure timely revenue collection, as incorrect self-assessment tax filings may attract penalties and interest charges. EASE OF TAXATION Self-assessment tax allows taxpayers to assess their tax liabilities at their convenience, taking into account various sources of income, deductions, and exemptions, without being solely reliant on tax authorities’ assessment. Bye Bye