Introduction to Tax Law

05/08/2024
yus/2006 1
 Learning Objective:
• What is tax?
• The characteristics of tax
• Importance of tax
• Objectives and contributions of tax
• Types of taxes
• Sources of revenue law
• Charging section and scope pf charge
 What is tax?
• ‘contribution levied on persons, property or business for the
support of government’ – Oxford Dictionary
• ‘compulsory exaction of money by a public authorities for
public purposes enforceable by law’ – Matthews vs. The
Chicory Marketing Board (1938)
• ‘the process of rising money for the purposes of
government by means of contributions from individual
persons’ – R vs. Barger (1908)
 Characteristics of a tax
• It is compulsory payment
• The money is raised for government purposes
• The exactions do not constitute payment for services
rendered
• The payments are not penalties
• The exactions are not random.
• It has a system and procedure based on tax regulation
 HISTORICAL BACKGROUND

• 1.1.1948- Income Tax Ordinance, 1947

– Introduced by the British Govt. into the
Federation of Malaya
– Based on Model Colonial Territories Income Tax
Ordinance,1922 which was designed for the
British Colonies
 HISTORICAL BACKGROUND

• 1.1.1968- INCOME TAX ACT 1967

– replacing Income Tax Ordinance 1947,
– consolidated of 3 laws of Income Taxation :
• (Income Tax Ordinance 1947,
• Sabah Income Tax Ordinance 1956,
• Sarawak Inland Revenue Ordinance 1960.
 HISTORICAL BACKGROUND

• Addition to income tax;

– 1967- Supplementary ITA 1967 (including
development and timber profit tax)
– 1967- Petroleum (Income Tax) Act 1967.
– 1968- Investment Incentives Act 1968
– 1986- Promotion of Investment Act 1986
– Land Speculation Tax Act 1974
– Real Property Gain Tax Act 1976
– Share (Land Based Co.) Transfer Tax Act 1984
 TYPE & CLASSIFICATION
OF TAX
DIRECT INDIRECT
• Tax paid directly by those • Tax generally collected via
on whom it is levied. third party.
• consist of : • Sales taxes,
– Income tax • service tax,
– Real property gain tax • Good and service taxes
• excise duty,
– Stamp duty
• export duty,
– Petroleum tax • import duty.
OBJECTIVES OF TAX POLICIES

• Revenue purposes
• Regulate private sector
• Discourage undesirable activities
• Distribute income & wealth
• Fairness & equity
• Continue Govt. in power
 SOURCES OF TAX REVENUE LAW

• Formal sources of law

• Statute Law/legislation- law that enacted by
Parliament, (ITA 1967)
• Case law/un-enacted law-law that created by the
decision of the courts
• Informal sources of law
• The Practice of the IRB
• The day-to-day practice (formal/informal)
• Ruling/guidelines issued by the IRB
 Scope of Charge to Income Tax

• Refers to the limit or parameters within which income

would be taxable in a country
Section 3 of ITA 1967,

“ Subject to and accordance with this Act, a tax to be

known as income tax shall be charged for each YA upon
the income of any person accruing in or derived from
Malaysia or received in Malaysia from outside
Malaysia”
Basis/Scope of Charge to Income Tax

i. Territorial or derived basis/scope

ii. World income scope
iii. Derived and remittance basis/scope
 Derived and remittance basis

• Income arising in Malaysia would be taxable (as in

derived basis)
• Income brought into the country from overseas would be
taxable.
 SOURCES OF INCOME
• SEC. 4, ITA 1967;
a) Gain or profit (income) from a business;
b) Gain or profit (income) from employment;
c) Dividends, interest or discounts;
d) Rents, royalties or premiums;
e) Pensions, annuities or other periodical
payments not falling under any of the
foregoing paragraphs;
f) Gain or profits not falling under any of the
foregoing paragraphs;
Revenue Income Vs. Capital Gain
• Income:- taxable
• Capital gain :- not chargeable to income tax
• How to distinguish between revenue income and capital
gain?
• What are the characteristic of the two?
– Court case: Mamor Sdn Bhd vs. Director General of IRB
 Scope of charge
• Resident
– Derived and remittance basis, which is derived from
Malaysia and received in Malaysia from outside
Malaysia (foreign source of income received in
Malaysia)
• Non-resident
– Territorial or derived basis
 DEFINITION OF ‘PERSON’.
• SEC. 2, ITA 1967;
– Person include;
• A company,
• A body of person
• 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

 Example
• Individual;
– Tax resident - 0-26% (scaled rate)
– Non-tax resident - 26%
• Trust body - 26%
• Club, trade association - 0-26% (scaled rate, same as
individual’s scaled rate)
• Co-operative society - 0-25% (scaled rate, different from
individual’s scaled rate)
• Limited Liability Partnership
– Paid-up capital < RM2.5 million
• Chargeable income <RM500,000 - 20%
• Excess - 25%
 Tax Rates: Income Tax Rates for Resident Individuals
Chargeable Income Y/A 2020 Y/A 2021 onwards
(%) Tax Payable (RM (%) Tax Payable (RM)
On the first 5,000 0 0
next 5,000 1 50 1 0
On the first 10,000 50 50
next 10,000 1 100 1 100
On the first 20,000 150 150
next 15,000 3 450 3 450
On the first 35,000 600 600
next 15,000 8 1,200 8 1,200
On the first 50,000 1,800 1,800
next 20,000 14 2,800 13 2,600
On the first 70,000 4,600 4,400
next 30,000 21 6,300 21 6,300
On the first 100,000 10,900 10,700
next 150,000 24 36,000 24 36,000
On the first 250,000 46,900 46,700
next 150,000 24.5 36,750 24.5 36,750
On the first 400,000 83,650 83,450
Next 200,000 25 50,000 25 50,000
On the first 600,000 133,650 133,450
Next 400,000 25 100,000 26 104,000
On the first 1,000,000 233,650 237,450
Next 1,000,000 28 280,000 28 280,000
On the first 2,000,000 513,650 517,450
exceeding 2,000,000 30 30
 Tax Rates: Income Tax Rates for Resident Individuals
Chargeable Income Proposed 2023 Y/A 2022
(%) Tax Payable (RM (%) Tax Payable (RM)
On the first 5,000 0 0
next 5,000 1 50 1 0
On the first 10,000 50 50
next 10,000 1 100 1 100
On the first 20,000 150 150
next 15,000 3 450 3 450
On the first 35,000 600 600
next 15,000 6 900 8 1,200
On the first 50,000 1,500 1,800
next 20,000 11 2,200 13 2,600
On the first 70,000 3,700 4,400
next 30,000 19 5,700 21 6,300
On the first 100,000 9,400 10,700
next 150,000 25 37,500 24 36,000
On the first 250,000 46,900 46,700
next 150,000 25 37,500 24.5 36,750
On the first 400,000 84,400 83,450
Next 200,000 26 52,000 25 50,000
On the first 600,000 136,400 133,450
Next 400,000 28 112,000 26 50,000
On the first 1,000,000 248,400 237,450
Next 1,000,000 28 280,000 28 280,000
On the first 2,000,000 528,400 517,450
exceeding 2,000,000 30 30
 Income Tax rate
 SMEs : paid-up capital < RM2.5 million
Chargeable income YA2022 YA2023-2024

First RM150,000 17% 15%

RM150,001 to RM600,000 17% 17%
Exceeding RM600,000 24% 24%

 Paid-up capital > RM2.5 million -24%

 Income Tax rate
 Other body of person (resident, nonresident, trust and business
trust)
 YA 1998-2006` - 28%
 YA 2007 - 27%
 YA 2008 - 26%
 YA 2009-2015 - 25%
 YA 2016-2024 - 24%