Income tax malaysia
Malaysia obtained its name in 1963, when the Federation of Malaya, Singapore, Sabah, and Sarawak formed a fourteen state federation. Malaysia is located in Southeast Asia, and its local currency is Ringgits (RM) .
In Southeast Asia, the highest income disparity between rich and poor is found in Malaysia. According to the UNHDP report, the richest 10% control the Malaysias 38 .4% of economic income as compared to the poorest 10%, who only control 1 .7%. This further triggers the need for levy of tax . The government of Malaysia levies various kinds of tax; namely, Income tax, Gift tax, Property tax, Estate tax, Sales tax, Corporate tax and so on . Now, our point of focus is Income tax.
What is Income tax? Income tax is tax imposed on an individual/company based on their annual income. The amount or percentage of tax is calculated using the government's graduated scale, which depends on earned and unearned income of an individual. But, Who levies it?
The Inland Revenue Board levies income tax in Malaysia . This Board, which functions under the Ministry of Finance is one of the main revenue collecting agencies . It is responsible for overall administration, including assessment and collection of direct taxes, as per the Income tax Act 1967.
Now let us try to find out," who is liable to pay tax"
Personal income tax:
All individuals are liable to pay tax on accrued income, derived from or remitted to Malaysia. It is quiet obvious that if there were a tax levy, then there would also be tax levy rate. This rate depends on the resident status of the individual, which is determined by the duration of his stay in the country Generally resident individuals are taxed on their chargeable income at rates varying from 2% to 30%, after deduction of tax relief . However, individuals with chargeable income of less than RM 2,500 are not taxed . The Chargeable income of an individual is obtained after deducting their personal reliefs from their total income . Some of the personal reliefs are mentioned below:
Personal - RM 5,000
Wife - RM 3,000
In Malaysia, tax liabilities of a resident individual are also reduced by rebates. It also allows certain deduction on aggregate income while calculating tax. T axable income is calculated after adjusting for expenses that are wholly and exclusively incurred in the production of the income. Some of the taxable income is mentioned below:
Salaries, remuneration, gains and profits from an employment
Dividends interest or discounts
Gains and profits from trade, profession and business
One important feature is that unabsorbed losses may be carried forward indefinitely to offset against future income.
Corporate tax:
A Company is accessible on income accrued in or derived from Malaysia, whether it is resident or not. However, income obtained from sources outside Malaysia, and remitted by a resident company is exempted from tax, with exception being Banking, Insurance business, and Sea and air transport undertakings . Both resident and non-resident companies are charged at the rate of 28% . But if a company is involved in Petroleum production, the applicable tax rate is 38%.
Tax on Non- resident Individuals
Generally, NRI's are charged at the rate of 30%, and they cannot avail themselves of any personal relief. Non-resident individuals would be taxed on income arising from sources within Malaysia . But foreign income received in Malaysia by a NRI is exempt from tax . However, if an employee visits Malaysia for a period not exceeding 60 days in a Calendar year, then income earned from their employment is exempt from tax .
Now, how are these tax assessed?
The Malaysian government has two ways of assessing a taxpayers liability.
1). Formal assessment system. 2). Self-assessment system.
Currently, Income tax is assessed on the income earned in the previous year and according to the Formal assessment system.
Formal assessment system: In this case, the taxpayers are required to declare their income in the return forms, submit the return forms to the Inland Revenue Board, which would then raise the final assessment. The Notice of Assessment is then sent to the taxpayer, and the tax amount indicated on it must be remitted to the IRB accordingly .
Self-assessment system: Here also, the taxpayers are required to fill and submit their return forms. But the Notice of assessment would not be sent to the taxpayers. Taxpayers computer their own tax, and should pay the entire amount before the due date . They are also required to estimate tax to be paid for the current year, and make monthly payments based on the estimate . Installment payment slip CP 501 needs to be submitted while making monthly payments.
In case of an employee, the Scheduler tax deduction scheme would apply; their tax would be deducted from their monthly salary by their employers and remitted it to the IRB . In fact the need for modernizing and streamlining tax administration has encouraged the IRB to shift from formal assessment system to self-assessment system. Also, the assessment of income tax based on income received in the preceding year has been changed to the current year assessment from the year 2000 .. Self-assessment is applicable for companies from the year 2001, and self-employed individuals from the year 2004 .
Appeal on tax-assessment
One could also make an appeal on tax-assessment if:
1. Personal reliefs are not properly given (or)
2. One forgot to claim certain expenses or reliefs (or)
3. There is an error in the assessment issued by the IRB office (or)
4. One is not satisfied with the manner in which their income is assessed.
Payment of taxes
1. In case of formal assessment, tax has to be paid within 30 days from the notice of assessment, if there is no appeal or disagreement with the tax assessed.
2. In case of self- assessment, tax has to be paid within the due date.
3. One could also pay tax in installments. Installment payment slip CP501 is required to be used while making payment .
Payment should be remitted at Bumiputra-Commerce Bank, Berhad, either by cash, cheque, debit account or Telegraphic transfer. Cheques must be drawn in favor of Director General of Inland Revenue.
What is an offence with regard to tax payment?
As per the Income tax Act 1967, an individual is said to have committed an offence if:
They fail to submit a completed tax return within the due date (or)
They provide incorrect information on matters affecting their liability (Or)
They fail to comply with notice asking for certain information (Or)
They fail to give notice of their chargeability to tax within the stipulated period.
In such cases, any taxpayer who is found guilty of committing an offence shall be liable to a penalty varying from RM 200 to RM 10,000, or an imprisonment for a maximum period of six months, or both, depending upon the type of offence committed.
Corporate taxpayer.
The system of Standard tax deduction was introduced in 1995. Here, employers deduct the tax amount from their employees salary, and remit it to the Director-Generals office by 10th of the succeeding month. Even the same practice is followed in India, the only difference being remittance of tax to the Income tax department happens by 7th of the succeeding month.
The employer is also liable to provide a complete statement giving the full details of remuneration paid, tax deducted for the whole year to each employee, not later than 30 days of completion of the calendar year. This statement is similar to Form 16 in India . Failure to comply constitutes of any one or more of the following :
1. Not deducting and remitting the correct amount
2. Not remitting the tax deducted to the IRD.
3. Not remitting the tax deducted by due date, that is by 10th of the succeeding month. If any employer fails to comply with the above-mentioned rules, then they are liable to a maximum fine of RM 1,000, or imprisonment for a period not exceeding 6 months, or both.
Also, one could get a refund on excess tax paid by submitting an application with all relevant details to the concerned collecting branch.
e-payment of income tax
With the advent of technology, the Malaysian government has also facilitated payment of Income tax electronically. Malaysia's online financial services portal helps the taxpayers to remit their taxes electronically. The e-payment option of this site helps the taxpayers to pay their tax directly to the IRB. Thus, we find that income tax structure in Malaysia is quite similar to that in India . It is also simple, well designed, and easily understandable.
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