BASIS OF MALAYSIA

INCOME TAX

CHARGING SECTION
SEC. 3 ITA 1967;
Subject to and in accordance with this act , a
tax to be known as income tax shall be
charged for each year assessment (Y/A) upon
the income of any person accruing in or
derived from Malaysia or received in Malaysia
from outside Malaysia.

SOURCES OF INCOME
a)
b)
c)
d)
e)

f)

SEC. 4, ITA 1967;

Gain or profit (income) from a business;
Gain or profit (income) from employment;
Dividends, interest or discounts;
Rents, royalties or premiums;
Pensions, annuities or other periodical
payments not falling under any of the foregoing
paragraphs;
Gain or profits not falling under any of the
foregoing paragraphs;

Income Vs. Capital Gain

Income -> taxable
Capital gain -> not chargeable to income
tax
How to distinguish between income and
capital?
What are the characteristic of the two?

SCOPE OF CHARGE
Refers to the limit or parameters within which
income would be taxable in a country
In general, there are 3 categories of scope of
charge to tax;

The territorial or derived basis

The world income basis
The derived and remittance basis
{Derived from Malaysia and received in Malaysia from
outside Malaysia (remittance basis)}

The territorial or derived basis

All income that arises within a particular territory
or country would be taxable.
Income arises outside the border is not subject
to tax; and
Any income arising overseas and brought back
into the country would also be free of tax.
Example; Hong Kong
Resident status and citizenship status is
irrelevant
issue;-> e-commerce income????

The world income basis

All income (wherever arising) is taxable.
The question of remitting income into a country
is not relevant.
The scope of charge is based on the citizenship
and residence status of a taxpayer.
Requires more resources in term of manpower
of tax authorities to ensure taxpayer report their
worldwide income.
Example: USA, JAPAN, AUSTRALIA, NZ
Issue -> double taxation
Must have double taxation agreement

The derived and received in basis

Improvement basis.
Income arising in particular country would
be taxable (as in derived basis)
Income brought into the country from
overseas would be taxable.
Based on residence status of taxpayer.
non-residence -> scope of charge is
derived basis
Still issue of double taxation arises.

Scope of charge for Malaysia

Resident
Derived and received in basis, which is derived from
Malaysia and received in Malaysia from outside
Malaysia (foreign source of income received in
Malaysia)
With the effect of Y/A 2004, foreign source income
received by any person in Malaysia will be exempted
from income tax, except co. carrying on business of
banking, insurance, shipping and air transport.

Non-resident
Territorial or derived basis

DEFINITION OF PERSON.
SEC. 2, ITA 1967;
Person include;
A company,
A body of person
A corporation sole

A body of person;
Unincorporated body of person ;
individual person;
Trust body; Club;
Executor ;
Co-operative society

The importance of the concept of

person.
Tax is charged on his income derived
from such taxable activities
The taxable activities were different for
different categories of person

Tax rate is different for different categories

of person
Flat rate or
Scaled rates or
Reduced rates

example
Company
28%
Individual;
Tax resident
- 0-28% (scaled rate)
Non-tax resident - 28%
Trust body
- 28%
Club, trade association - 0-28% (scaled rate,
same as individuals scaled rate)
Co-operative society - 0-28% (scaled rate,
different from individuals scaled rate)

Basis of Assessment
Basis year vs. Basis period
Basis year refer to the calendar year
Basis period is the calendar period (12
months)
Ex. Basis year 2001 is a period starting from 1
Jan. 2001 to 31 Dec 2001.

Basis of Assessment
Tax is assessed in respect of a year of
assessment; i.e a calendar year.
before year 2000 - Preceding year
assessment
starting from year 2000 - Current year
assessment

Preceding year vs. Current year of

assessment
Preceding year assessment
The imposition of income tax is a year later
than the derivation of income
Y/A 1999 cover income for basis year 1998
from a basis period starting 1 Jan. 1998 to 31
Dec 1998.
Y/A 2000 - a period from 1 Jan. 1999 to 31
Dec 1999

Preceding year vs. Current year of

assessment
Current year assessment
Starting from Y/A 2000
The assessment of income tax to be concurrent with
the derivation of the income
Y/A 2000 - a period from 1 Jan. 2000 to 31 Dec 2000
Y/A 2001 cover income from basis period starting 1
Jan. 2001 to 31 Dec 2001

Gov. has granted a waiver of income tax for the

Y/A 2000 on the preceding year basis to relieve
taxpayer from paying two years income tax
within a year.

Basis year/basis period

Individual -> calendar year
Com., trust, club
> it can be either calendar year or,
> its financial year