It is very important to have taxation knowledge whether as an individual or a

business entity. The taxation knowledge includes tax laws which functions as a guide to
mainly minimize the chargeable income. It is a mandatory thing to update yourself as an
individual tax payer or as a business entity with the latest tax laws. By having sufficient
taxation knowledge, one can know the items that can be claimed for tax reliefs and
exemption given by the government of a country and can compute the tax rates accurately
based on the countrys tax rate schedule.
Importance of taxation knowledge for individual taxpayer
Taxation is used as a main fiscal tool by the government to collect revenue to
achieve economic and social objectives, and for redistributing income. Tax knowledge is
an essential element in a voluntary compliance tax system, particularly in determining an
accurate tax liability. More recent studies undertaken in Malaysia (Loo, 2006; Loo et al.,
2008; 2009) also suggested tax knowledge to be the most influential factor to determine
taxpayers compliance behaviour under the self-assessment system. This is empirically
established by several other studies (for example, Kirchler et al., 2006), which
documented that possessing tax knowledge would lead to higher compliance rates. On
similar note, the absence of tax knowledge may lead to noncompliance behaviour among
taxpayers, either intentionally or unintentionally.
Taxpayers employ tax professionals to represent them for a number of reasons.
These reasons include, a desire to lodge accurate returns mainly due to their lack of tax
knowledge based on the complexity of the current tax law, a desire to minimize the tax
they are required to pay, their fear of making a mistake and being penalized, or just
having a lack of time to complete their own return.
Although a general knowledge of the taxation system was displayed by
most taxpayers, specific tax knowledge was still limited. That is, while tax payers
displayed an awareness of relevant income and deductions, they knew little about tax
administration and the level of penalties.
By knowing the knowledge of taxation, an individual can identify their residence
status purely based on a quantitative test. It is important to know whether an individual is
a tax residence of a country. The residence status of an individual is determined by a

reference to the number of days an individual person is present in a particular country

during a particular calendar year.
It is very important to have the knowledge regarding taxation for individual
taxpayers as it determined the income tax rates that will be charge. Tax relief and
exemptions that will be deducted from the chargeable income can be identified by an
individual who have tax knowledge.
Importance of taxation knowledge for business owner
Business owner is individual who owns a business entity in an attempt to profit
from the successful operations of the company whether the business entity is large or
small such as sole proprietor and partnership. Business owners also can be known as selfemployed because they provide their own equipment, take a financial risk, can earn profit
from their own entrepreneurial skills and work for short periods for a number of different
contractors. Therefore, as a business owner must possess the knowledge of taxation as it
can help you to save money or reduce tax and gain some essential information that is
useful and helpful for your business to grow and prosper.
Based on the taxation knowledge, businesses can deduct all ordinary and
necessary business expenses from their revenue to reduce the taxable income as long as
the business expenses are wholly and exclusively incurred in the production of gross
income. For example, any allowable expenses, double deduction, and special deduction
that are stated in the Income Tax Act 1967 can be deducted against gross income.
Other than that, the current year business loss can be deducted against aggregate
income in the same year of assessment if the expenses are more than the incomes of the
company. If the current year business loss cannot be fully deducted by the aggregate
income, then such unabsorbed loss can be carried forward to future year of assessment to
set off against statutory business income which may not be from the same source of
business. Meanwhile, the adjusted loss for employment income is a permanent lossin
which that cannot be used to reduce any income.
Furthermore, the business owner also can claim the capital allowance only if he
incurred qualifying plant expenditure, he uses the assets in the business, and he is owner
of the asset at the end of the basis period. Any unabsorbed capital allowance can be

carried forward to next year of assessment to be set off against adjusted income within its
respective source in arrive statutory income.
In a nutshell, we understand that business owner is given more flexible deduction
as compared to individual taxpayer through the taxation knowledge. Hence, business
owners shall learn the tax knowledge as it help the taxpayers to find a solution on reduce
or eliminate their tax liability so that they can reap the largest tax benefits.