Comprehensive Analysis of Malaysian Taxation System and Reforms

This report provides a comprehensive overview of the Malaysian taxation system. It begins with an introduction to the system, followed by a detailed description of the Malaysian tax administrator, the Inland Revenue Board of Malaysia (IRBM), including its background, vision, mission, and responsibilities. The report then describes the Malaysian tax system, including the assessment system, assessment year, and tax filing system. It further discusses recent changes in the Malaysian income tax system, effective from 2017, such as tax reliefs for lifestyle expenses, changes in tax filing, and penalties for non-compliance. The report also reviews the implications of these changes on corporate tax, personal income tax, real property gain tax, and stamp duty, highlighting their effects on both individuals and organizations like Hong Leong Financial Berhad. The report concludes with a summary of the key findings and references.

Taxation

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Description of Malaysian tax administrator............................................................................1
2. Description of Malaysian tax system......................................................................................2
3. Discussion of changes in the Malaysia income tax system.....................................................3
4. Review on the implication of changes in tax system..............................................................4
SUMMARY.....................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Malaysian taxation system is implemented on all the resident and non resident person of
the country. Taxes are only collected on local incomes and there is no taxation policy on foreign
income whether the person is resident or non resident. Malaysian government do not charge any
type of tax on capital gains from sale of assets and investment other than those that are related to
land or building (Ibrahim, 2014). Company taken in this project report is Hong Leong Financial
Berhad, which is based in Malaysia.
This project report consist description of Malaysian tax administrator and system,
changes in the income taxation system, implications of changes in tax system on taxpayers in
Malaysia.
MAIN BODY
1. Description of Malaysian tax administrator
Name of tax administrator: In Malaysia tax administrator is IRBM i.e. Inland Revenue
Board of Malaysia, which is the main revenue collecting agency selected by ministry of finance.
For example it is responsible to collect taxes of all the taxable income of Hong Leong Financial
Berhad.
Background of tax administrator: Inland revenue department of Malaysia was
converted to Inland revenue board of Malaysia on March 01, 1996. It was establish to provide
more autonomy within the country and the act for the board is IRBM 1995. In year 2011
Malaysia government has introduced comprehensive economic transformation plan with other
government initiatives . This activity has transformed IRBM to manage taxes effectively within
the country. It was mainly established to improve the quality of tax administration (Background
of IRBM, 2018).
Vision and Mission of tax administrator:
 Vision of Inland Revenue Board of Malaysia is become the leading tax administration
that can contribute toward nation's growth.
 Mission of IRBM is to supply superior taxation services which is possible by enhancing
intentional cooperation, establishing transparency in taxation system, raising
effectiveness of operations with the help of advanced procedures and updated IT system.
1

Roles and responsibilities of IRBM: Following are the roles and responsibilities of tax
administrator of Malaysia:
 Main responsibility of IRBM is to improve the potency and attribute of tax
administration.
 The role of IRBM can be summed up as the overall administrator of direct taxes in
Malaysia.
 IRBM is liable to act as the agent of government and provide services such as assessing,
enforcing and administrating and monitoring tax payments to various companies like
Hong Leong Financial Berhad (Loo, Evans & McKerchar, 2012).
 It is responsible to provide advice to the government in matters that are related to taxes.
 IRBM has various other responsibilities and roles to play such as a collection agent who
is required to recover all the defaults in loans and also requisite to play a role of mediator
among proportioning ministries and legal bodies of Malaysia.
2. Description of Malaysian tax system
Malaysian taxation system:
Assessment system: In Malaysia there are three different taxation authorities who are
responsible to collect taxes within the country. These are Malaysian Customs, Inland Revenue
Board and Ministry of Finance. It is mainly regional, in which all the residents and non residents
are liable to pay taxes and there no taxes regulation for foreign income which means no tax
liability will be calculated on such type of incomes (Mansor & Ilias, 2013).
In Malaysia there is no distinction between resident and non resident companies tax rates
are same for both type of companies. There is no capital gain tax is charged on sale of
investments and capital assets except land and building. The companies in Malaysia are directed
to follow Malaysian accounting standards and regulatory body for accounting is Accountant
General's Department of Malaysia.
Assessment year: Taxation year is 1 January to 31 December for Malaysia. In Malaysia
resident and non resident individuals both have to pay taxes but only that income will be taxable
which is generated from Malaysian sources.
Tax filing system: As Hong Leong Financial Berhad is a resident company is Malaysia
so it has to pay all the taxes to the government Tax liability will be calculated on the income
which is generated from local or Malaysian resources. Foreign income is not taxable within the
2

country. For individuals other tax assumptions are imposed by the legal authority in which they
are liable to declare their all incomes to Inland Revenue Board of Malaysia. They are also
responsible to submit complete income tax return form that keeps the record of supporting
documents for the audit procedure.
Road tax is also implement on the cars and depends upon the size of car, capacity of its
engine and region owned by the tax payer. It the capacity of the engine is less than 1.6 litre than
taxation rates are fix. Cars having more than 1.6 litre engine are are treated as per progressive
rate (Nanthakumar, Shahbaz & Taha, 2014). In Goods and Service Tax various items are
exempted that are life insurance, financial, private health and educational services, land which is
used by public or agriculture purpose and other basic goods such as rise, fish, meat, chicken,
cooking and vegetable oil etc.
3. Discussion of changes in the Malaysia income tax system
Assessment system: The Malaysian taxation policies are remained unchanged from a
long period but recently various changes are made in taxation system of Malaysia by
government. These changes are came in to effect from year 2017 onwards. All the changes are as
follows:
 A taxation relief for life style up to the maximal amount of RM 2500 will be provided for
amount which has been expended by individuals or companies on the buying of printed
daily news papers.
 It is also provided on the purchase of tablets or smart phones, payment of gym
membership fee and internet subscription.
This type of relief is the combination of different benefits that are given in previous years
for acquiring books, different type of journals, articles that are in tangible form, magazines and
other publications other than news papers. These publications are mainly used for the purpose of
intensifying knowledge, acquiring sports or gym equipments and buying an internet broadband.
Assessment year: It is not changed by the Malaysian government which is starting on 01
January and ending on 31 December.
Tax filing system: It has also some changes that are as follows:
 Change tax filing system in income tax is that the output tax faced by an employer for a
worker should be included in the employment income by introducing 13(1A) in income
tax act 1967 (Changes in income tax of Malaysia, 2017).
3

 Changes are made in the section 97A of income tax act 1967, which is related to the
notification and appeals process in the situation of when an individual is afflict by a
public ruling made under section 138A. It is also implemented on the actions which is
taken by director general specifically at the time of the return or payment.
 New section 131A has been introduced for individuals under income tax in which
persons can apply for a benefit if they have paid tax on evaluation. If such type of
expanding is not according to the law or not approved by the director general of IRBM,
in this situation the person is not able to claim any type of relief, deduction or benefit.
 Another change which is going to be effective from year 2019 is that a limited
partnership firm, trusts and cooperative societies should present their estimated payable
tax in front of IRBM for every assessment year, it can be presented with the help of
electronic medium which is defined under section 152A (Sapiei & Abdullah, 2014).
 A new rule has been implemented by the Malaysian government. Under which it has
mentioned that if a person presents a false report, misdirect taxation authority, file
incorrect return or commits any type offence which is declared illegal under income tax
act 1967, will be liable to pay a fine at least RM 20000 and not more than RM 100000 or
may have to go behind the bass for six months or may have to face both.
 Changes in various sections are made in which it is defined that the individuals or
organisation who fails to present a accurate report, fails to comply all the rules and
regulation while formulating financial statements than they have to pay penalties under
income tax act 1967.
All the above mentioned changes are implement by the Malaysian government for individuals
and organisations and all the changes are adopted by Hong Leong Financial Berhad.
4. Review on the implication of changes in tax system
There are various changes are made by the Malaysian government in tax system it has
affected the individuals as well as organisations. Following are the implication of changes in the
tax system:
Corporate tax: In this tax the taxation rates of the first 500000 has been reduced up to
18% from 19% in year 2017 for upcoming years. Definition of royalty under section has also
been changed and the change has broaden the scope of royalty (Ishak, Othman & Omar, 2015).
There is another change in the corporate tax in which income received or paid to unit trust of
4

Malaysia, credited by banks or other financial institutions that are licensed under Islamic
Financial services Act 2013, should be exempted under income tax. If unit trust is a money
market fund that exemption will only be allowed on wholesale funds.
These changes in corporation tax has affected organisations like Hong Leong Financial
Berhad because now it have to pay less amount of tax as government has decreased the tax rate
from 1 % on first 500000. Another effect of this change is that the corporations do not have to
pay any tax on income received from unit trust or any other financial institution which is
registered under Islamic Financial Services Act 2013 (Taha, 2013).
Personal income tax: Various changes are made by the government on personal
taxation, in which individuals are provided amount of 2500 for the amount which has been spent
by them on the purchase of news papers, smartphones, payment of gym fees etc. for the purpose
of gathering knowledge. There is a modified clause has been implemented by the government in
which it has been mentioned that if a person is presenting wrong report to IASB, misguiding tax
authority and performing any type of activity which has been declared illegal under income tax
act 1967 has to pay penalty or may have to go behind the bass for 6 months.
These changes have benefited individuals and government because now less frauds are
made by individuals in Malaysia. Individuals are getting tax rebated on their spendings on
knowledge enhancement publication.
Real property gain tax: There is a major change in real property gain tax in which it has
mentioned that provided gift from the donor to recipient is now limited to the donor who is the
citizen of Malaysia. A modified section has been introduced under this tax which is 6(1A) and
7(2) to provide that incidental cost for the purchase or sale of an asset which is related to the
adjustment needed to be made on the total input (Taha and et. al., 2013).
These changes in the taxation system has affected individuals in positive and negative
both ways because now the gifted thing will be limited to the donor and will not be considered as
the asset of recipient. Another effect of the change is that all the adjustment in the asset will be
made on the input amount which is paid by buyer at the time of purchase.
Stamp duty: Government has changed rules related to stamp duty in which it is now
provided on instruments of transfer and loan agreement between two parties. There is a set limit
for this clause in which the purchased unit residential property should not exceed RM 500000
5

and not less than RM 300000. Deduction on this type of asset will be provided on first RM
300000.
There are various implications of these changes because now buyer can get exemption in
stamp duty for first RM 300000 and on rest amount of the asset stamp duty will be charged on
normal rates (Wong, K. Y., Chuah, J. H., & Hope, C. 2016).
SUMMARY
From the above project report it has been summarised that, Tax administrator of Malaysia
is Inland Revenue Board of Malaysia who is responsible to collect all types of direct taxes within
the country. The Inland Revenue Department of Malaysia has been converted to IRBM on 01
March 1996. The vision of IRBM is to become the leading tax administration of Malaysia and
contribute toward nation's growth. Mission of the taxation administrator of Malaysia is to supply
superior taxation services which is possible by intensifying intentional cooperation, establishing
opacity in taxation system, increasing potency of operations with the help of advanced
procedures. There are various roles and responsibilities of IRBM in which the major one is to
control and monitor all the taxation related activities and collect taxes from all the taxpayers.
Another responsibility is to monitor that every tax payer is filing accurate report. Year of
assessment of Malaysia starts from 1 January and ends on 31 December. In Malaysia no taxation
is charged on purchase and sales on capital assets and investments other than land and building.
Taxation rates are same for residents and non residents. Various changes are made by Malaysian
government in taxation system which has affected all the individuals and organisations. One
major change is that the corporate taxation rates are reduced by 1% on first 500000. Another
change is made in stamp duty in which buyer get exemption in stamp duty if the purchase is
more than 300000 and less than 500000. One more change has been taken place which was in
personal income of individuals on Malaysia in which a modified clause has been added by the
government according to that if individuals are presenting wrong report to IASB or misguiding it
than they have to pay penalty or may sued by the legal authority. This change has helped
government because now they have to face less frauds. Changes are also made in real property
gain tax in which it has been mentioned that gift provided by donor to the another person will be
limited to the donor according to the changes and considered as the asset of the recipient.
6

REFERENCES
Books and journals:
Ibrahim, I. (2014). The compliance time costs of Malaysian personal income tax system: E-filers
vs. manual-filers. Procedia-Social and Behavioral Sciences. 164. 522-527.
Ishak, N. I., Othman, M. H., & Omar, M. F. (2015). Students' perception towards the newly
implemented Goods and Services Tax (GST) in Malaysia. International Journal of
Contemporary Applied Sciences. 2(6). 80-99.
Loo, E. C., Evans, C., & McKerchar, M. A. (2012). Challenges in understanding compliance
behaviour of taxpayers in Malaysia.
Mansor, N. H., & Ilias, A. (2013). Goods and services tax (GST): A new tax reform in Malaysia.
Nanthakumar, L., Shahbaz, M., & Taha, R. (2014). The effect of Green Taxation and Economic
Growth on Environment Hazards: The Case of Malaysia.
Sapiei, N. S., & Abdullah, M. (2014). Sources of Tax Compliance Costs for Malaysian
Corporate Taxpayers. Asian Journal of Accounting Perspectives, 49-61.
Taha, R., (2013). Stock market and tax revenue collection in Malaysia: Evidence from
cointegration and causality tests.
Taha, R. and et. al. (2013). Does financial system activity affect tax revenue in Malaysia?
Bounds testing and causality approach. Journal of Asian Economics. 24. 147-157.
Wong, K. Y., Chuah, J. H., & Hope, C. (2016). Carbon taxation in Malaysia: insights from the
enhanced PAGE09 integrated assessment model. Carbon Management. 7(5-6). 301-312.
Online
Background of IRBM. 2018. [Online]. Available through:
<https://www.3ecpa.com.my/resources/guide-to-setup-malaysia-business/inland-
revenue-board-of-malaysia-irbm-income-tax-department/>
Changes in income tax of Malaysia. 2017. [Online]. Available through:
<http://www.wolterskluwer.com.my/accounting/highlights-of-tax-changes-taking-
effect-in-2017/>
7