CIA2012 Principles of Taxation

Overview of
Malaysian
TOPIC 1
Taxation
System
What is a Tax? Definition:

Concise Oxford Dictionary:

“….contribution levied on persons, property or business for the support of
government”.

Australian Case Law:

• “….a compulsory exaction of money by a public authority for public
purposes enforceable by law”.
• “….the process of raising money for the purposes of government by means
of contributions from individual persons”.
Tax Characteristics

1. Compulsory payment
2. Money raised for government purposes
3. Not constitute payment for services rendered
4. Not penalties
5. Not arbitrary
6. Should not be incontestable
Criteria of A Good Tax System (Adam Smith, 1776)

▪ Equity - Equally burden all taxpayers in a similar economic situation.

▪ Certainty - The amount of tax payable is not arbitrary but is certain
▪ Neutrality - Taxes should not favour any taxpayer over another.
▪ Simplicity - Tax assessment should be able to understand by an average
taxpayer.
▪ Efficiency - taxes are collected effectively and at minimum cost to both the
government and taxpayers.
▪ Flexibility - Taxes enforced in a manner that facilitates voluntary compliance.
▪ Fiscal Adequacy - Just enough to generate revenue in order to provide the
necessary public services to the community.
Objectives of Taxation

▪ Collection of Revenue - Main source of revenue to finance the provision of public

goods such as education and national defence.
▪ Redistribution of Income - Regulate the distribution of income and wealth
between different types and classes of citizens.
▪ Macroeconomic Control - To regulate the private sector of the economy for eg
to maintain the desired level of employment
▪ Protection of Industries - Regulate the activities of the private sector so as to
encourage activities which are beneficial to the country.
▪ Control of Consumption - Regulate specific activities of citizens which are
thought to be undesirable, such as drinking, smoking and gambling.
Types of Taxes

1.1 Direct Taxes 1.2 Indirect Taxes

➢Income Tax ➢Customs Duties

➢Petroleum Income Tax ➢Excise Duty
➢Real Property Gains Tax ➢Sales and Services Tax (SST)
(RPGT)
➢Stamp Duty
Sources of Revenue Law

➢Statute Law - Eg. S.33(1) of the ITA 1967

▪ Principle source of the revenue law, based on UK statutes with amendments to
suit our environment.
➢Case Law - Eg. Mallalieu v Drummond (1983)
▪ Where statute does not provide clear stand on certain issues.
▪ Disputes forwarded to the court of law, refer back to any similar cases earlier: UK
& Commonwealth countries
➢IRB Ruling - Eg. Public Ruling No. 3/2004 on Entertainment Expenses
▪ Important means for public to understand the interpretation of certain issues by the IRB.
Scope of Charge to Income Tax

• Categories:
i. Territorial or derived basis/scope
ii. World income scope
iii. Derived and remittance basis/scope

• Scope of Charge to Income Tax in Malaysia?

Malaysia adopt derived/territorial basis
Computation of Chargeable Income
[CHARGEABLE INCOME FRAMEWORK]

❑ Gross Income
❑ Adjusted Income
❑ Statutory Income
❑ Aggregate Income
❑ Total Income
❑ Chargeable Income
Ascertainment of Chargeable Income
▪ Gross Income is the business income from
Gross Income all sources
▪ Adjusted income – after deducting all
Adjusted Income
expenses wholly and exclusively incurred
▪ Statutory Income – After deducting
capital allowances from the Adjusted
Statutory Income
Income
▪ Aggregate Income – Apply the unabsorbed
Aggregate
Income
business loss and add other non-business
income.
▪ Total Income – After deducting adjusted
Total Income/
business loss and donations.
Chargeable ▪ Chargeable Income – After deducting tax
Income
reliefs for individuals - Income subject to
Income Tax
Classes of Income & Relevant Section

Section Types Income

S 4(a) Business
S 4(b) Employment
•S13(1)(a) – Monetary
•S13(1)(b) – Non-monetary
•S13(1)(c) – Accommodation
•S13(1)(d) – Unapproved Fund
•S13(1)(e) – Loss of Employment
S 4(c) Dividend & Interest
S 4(d) Rental & Royalty
S 4(e) Pension & Annuity
S 4(f) Other Income
Tax Rates

I. Graduated rates [see Appendix] - Resident individuals

https://www.hasil.gov.my/en/individual/individual-life-cycle/how-to-declare-
income/tax-rate/

II. Fixed rates – Company (24%); non-resident (NR) (30%).

III. YA2023: Companies with a paid-up share capital of not more than RM2.5
million: https://www.hasil.gov.my/en/company/tax-rate-of-company/

- tax rate of 15% on the first RM150,000

- tax rate of 17% on RM150,001 to RM600,000
- tax rate of 24% on RM600,001 and subsequent balance of Chargeable Income
Thank you..

Do everything with a good heart and

expect nothing in return… and you
will never be disappointed…
TAX ADMINISTRATION
Topic 2
 ORGANIZATIONAL HIERARCHY

✓ IRB is a statutory body, part of MOF.

✓ DGIR headed the management of income tax.
✓ Confidentiality - “classified person” deal with “classified
material”
✓ Tax Agents must be licensed by MOF.
 SELF ASSESSMENT

▪ Replaced the official assessment system for Companies in 2001

and other taxpayers in 2004.

▪ Taxpayers are required by law to determine taxable income,

compute tax liability & submit tax returns

▪ Shifted the responsibility from IRB to taxpayer.

▪ Enforce compliance through tax audits & penalty system.

 TAX ADMINISTRATION

Return

Penalties Assessment

Appeal Collection
 RETURN
Types of Return (example)

B : Resident individual with business income

BE : Resident individual without business income
M : Non-resident individuals
C : Companies
C1 : Co-operatives societies
P : Partnership
E : Return by employers
 RETURN
• All taxpayers are responsible to obtain return form – either hardcopy
or password for e-filing

• The completed form should reached IRB by

• 30 April : individuals without business income
Income from employment is deducted by employers under the
MTD (PCB) Scheme.

• 30 June: individuals with business income

The tax authorities will issue instalment schemes

• For companies, the last day to furnish return form is 7 months after the
close of accounting period.
The instalment payment scheme is on a 12-monthly basis.
 RETURN

Extension of time can be considered if a written application is made before

the dateline, stating:

• The extended date requested

• Reasons: for eg: not in Malaysia, hospitalised or in prison

• An estimate of the income /statement of tax deductions under

installment scheme
 ASSESSMENT
Original Assessment

Reduced Assessment

Additional Assessment

Composite Assessment

Increased Assessment

Advance Assessment

Protective Assessment
 ASSESSMENT

• Original Assessment
Assessment made in accordance to the particulars provided by taxpayer
or his agent

• Reduced Assessment
Original assessment or additional assessment being reduced.
When there is an appeal against the assessment made, the taxpayer may
reach an agreement with the DG during the review of assessment or by
providing acceptable evidence for claims of expenses, or taxpayer win
the case through appeals to Sp Comm or court decision.
 ASSESSMENT

•Additional Assessment
Will be issued by DG upon discovering new facts or new docs
notwithstanding that the issue is on appeal to the High Court.

May be raised by DG when:

a) Taxpayer had omitted certain income while making the return and
it is discovered by DG after making original assessment;
b) Tax had been refunded by an error of fact or law;
c) There is additional income which has not been taken into acc
when making the return
 ASSESSMENT

• Composite Assessment
Will be raised when taxpayer:
a) Makes default in furnishing a return
b) Fails to give notice of chargeability
c) Makes an incorrect return by omitting or understating any income
d) Give incorrect information affecting his own chargeability.

Would include the tax undercharged and penalties, normally comprises

a few YAs.
Usually made after tax investigation/field audit is conducted.
 ASSESSMENT

•Increased Assessment

Issued when:
a) The taxpayer reach an agreement with DG during the review of
assessment
b) Sp Comm or the Court had decided the issue in dispute and resulted
in an increase in the tax payable.

No right to appeal against an increased assessment when there is an

agreement.
 ASSESSMENT

• Advance Assessment
Taxpayer is assessed in advance to prevent loss of revenue when:

a) Taxpayer ceases to carry on a business

b) Taxpayer receive employment income, pension, annuity or periodical payment
c) Taxpayer is about to leave Malaysia and his source of income is likely to cease
upon leaving Malaysia
d) Taxpayer carrying on the business of transporting passenger/cargo by sea or air
e) Where the basis period of a business or investment sources for a YA does not
coincide with the calendar year
f) Where taxpayer received income subsequent to a cessation of business source.
 ASSESSMENT

• Protective Assessment

The DG is authorized to issue additional assessment subject to a 5

years time limit, unless there is element of negligence, willful default
or fraud.

Protective assessment will be issued to avoid assessment being time

barred.
 COLLECTION

▪ Payment of Tax by Instalments

▪ Penalty on Overdue Tax
▪ Collection of Tax from Spouse
▪ Deduction of Tax from Emoluments and Pensions
▪ Recovery from Employers and Persons Leaving Malaysia
▪ Recovery by Suit
▪ Refund of Overpayments
▪ Compensation For Late Refund of Income Tax
 MONTHLY TAX DEDUCTION (MTD)

• Mechanism to collect tax from employees on monthly basis

• Responsibility of deduction lies on the employer
• Monthly tax deduction is calculated based on the following factors:
• Employee’s monthly income
• Contribution to EPF
• Marital status
• Number, age, education status of child
• Working status of spouse
• Disability status (employee or spouse).
 APPEAL
• When the taxpayer is not satisfied with the manner in which the
income has been assessed

• Assessment/Additional assessment/ Advance assessment – made

as a result of desk audit or field audit findings, tax investigations;
or
• Best judgement assessment – made when there is no submission
of tax return or late submission of tax return.

• In this case, notice of appeal (Form Q) must be submitted with

grounds of appeal
 APPEAL

• If DG reject the application, the application will be forwarded to SCIT

with his reasons for not granting the extension.
• Taxpayer may forward written representation to SCIT. The decision of
SCIT shall be final.
• The tax payable however must still be paid, even though an appeal has
been made. Payment of tax by way of installment can be arranged with
IRB collection branch.
 OFFENCES & PENALTIES
Examples:
Provision in ITA 1967 Offence Penalties

Sec 112 Failure to furnish return or Fine not less than RM 200 & not more than
give notice of RM 20,000 OR imprisonment not
chargeability exceeding 6 months OR BOTH
Sec 113 Incorrect returns Fine between RM 1,000 to RM 10,000 and
special penalty of double the amount of
tax which had been undercharged but
no imprisonment

Sec 114 Wilful evasion Fine not less than RM1,000 to RM20,000 or
imprisonment not exceeding 3 years or
BOTH and 3 times of tax undercharged.
 OFFENCES & PENALTIES
Provision in ITA 1967 Offence Penalties
Sec 115 Leaving Malaysia Fine not less than RM200 to RM20,000
without payment of tax or imprisonment not exceeding 6
months or BOTH

Sec 116 Obstruction of officers Fine not less than RM1,000 to

RM10,000 or imprisonment not
exceeding one year or BOTH
Sec 117 Breach of confidence Fine not more than RM4,000 or
imprisonment not exceeding one
year or BOTH
Sec 119A Failure to keep records Fine not less than RM300 to RM10,000
or imprisonment not exceeding one
year or BOTH
 RESPONSIBILITIES OF A TAXPAYER
✓ Notify IRB of his chargeability to tax;
✓ Complete a return form and retain supporting documents;
✓ Submit the return form within stipulated time period;
✓ Sign the return form even though it was prepared by an agent;
✓ Comply with a request made by the DG to submit any other return;
✓ Submit Form E every year (if carrying on a business);
✓ Comply with the provisions dealing with commencement and
cessation of employment;
✓ Keep and retain in safe custody sufficient records for 7 years;
✓ Inform IRB in writing of any change of address within 3 months.
 NOTICE OF CHARGEABILITY
▪ Individuals:
✓ Arrives in Malaysia during a YA must notify IRB within 2 months.
✓ Carrying on a business must file a return whether or not he is chargeable to
tax.
✓ Deceased individual income must be reported by the deceased’s
representatives.

▪ Companies, Partnerships, Clubs, Associations and Institutions:

✓ In liquidation must complete annual returns up to the date of dissolution by
the liquidator.
✓ Responsibility of making a return of a partnership falls on precedent partner.

▪ Amendments to tax return is allowed on errors resulting in an additional

assessment and a penalty imposed.
Thank you…
Helping one person might not
change the whole world, but it
could change the world for that
one person.
RESIDENCE STATUS FOR
INDIVIDUAL

TOPIC 3
 Importance of Resident Status

Resident individuals would have OVERALL

PREFERENTIAL tax treatment:

a.Entitlement for personal rebates and relief;

b.Tax rate - graduated vs flat;
c.Exemption on certain types of income (for example
royalty income; translation literary works exempted
up to RM12,000).

Non-resident individuals:
Short-term employment income (< 60 days)
 How to Determine?

▪ Nothing to do with citizenship of a person.

▪ Tax resident is not granted automatically.
▪ Section 7(1) of the Act lays down four
circumstances where an individual can be
regarded as tax resident in Malaysia.
 S7(1)(a) to S7(1)(d) ITA 1967
a. The total period of a person present in Malaysia ≥ 182
days.
b. The total period of a person present in Malaysia is < 182
days, and that period is:
▪ linked by the previous period where the total of previous
period is ≥ 182 days, or
▪ linked to the following period where the total of
following period is ≥ 182 days.
c. The total period of a person present in Malaysia is ≥ 90
days, and he is resident or in Malaysia for a period of ≥ 90
days at least 3 times for the last 4 years.
d. The person is a tax resident for the immediate 3 preceding
years and also a tax resident for the following year.
 Sec 7(1)(a)
The person is a tax resident if he is present in
Malaysia in that basis year for period(s) more
or equal to 182 days

YEAR 2023 OR YEAR 2023

 182 days I + II  182 days

Jan 1 Dec 31 Jan 1 I II Dec 31

 Sec 7(1)(a): Example

Razman has the following records of stay in his passport:

• 1/1/23 - 28/2/23 (59 days)
• 1/6/23 - 31/7/23 (61 days)
• 1/10/23 - 2/12/23 (63 days)

Is he a resident for YA 2023?

Answer:
Since his total period of stay is (59+61+63) = 183 days,
he is a tax resident by virtue of Sec 7(1)(a).
 Sec 7(1)(b) – LINK BY
(1) An individual MUST:
Present in Malaysia for < 182 days and that period is LINKED BY
previous period of 182 CONSECUTIVE DAYS.

Resident status in question (Year 2023)

1/1/22 31/12/22

1/1/23 31/12/23
 182 days < 182 days

YEAR 2022 YEAR 2023

 Link

▪ WEF YA 2002, the consecutive days & physical presence of

31/12 and 1/1 are no longer required to establish the link
period

▪ The 3 types of temporary absence (only applicable to Sec

7(1)(b)) are also counted as CONSECUTIVE DAYS.

▪ Absence on both days are only allowed if such absence fall

under permitted temporary absence:
✓ Absence connected with his service in Malaysia or
attending seminar conferences /study abroad.;
✓ Absence owing to ill-health; or
✓ Absence in respect of social visits not exceeding 14
days
 Sec 7(1)(b) – LINK BY – Example

Siew Chen returned to Hong Kong on 3/1/23

after spending her contractual work in Malaysia
since 26/6/22. During that period, she never
leaves Malaysia.

Determine her resident status for YA 2023.

 Sec 7(1)(b) – LINK BY -

Answer:
26/6/22 – 31/12/22 = 189 days
1/1/23 – 3/1/23 = 3 days

Siew Chen is a resident for YA 2023 by virtue of

Sec 7(1)(b) link by because:
 She was present in Malaysia for <182 days in
2023.
 There is a link and she stayed in Malaysia for
more than 182 consecutive days in 2022.
 Sec 7(1)(b) – LINK TO
(2) Present in Malaysia for < 182 days and that period is LINKED
TO a period of 182 CONSECUTIVE DAYS.

Resident status in question (2022)

1/1/22 31/12/22 31/12/23

<182 days  182 days

YEAR 2022 YEAR 2023
 Sec 7(1)(b) – LINK TO – Example

Ziyad Shah was present in Malaysia for the following

periods.
1/10/22 – 31/12/22 (92 days)
1/01/23 – 31/7/23 (212 days)

Determine his resident status for YA 2022.

 Resident Status for Individual

Answer:

Ziyad was a resident by virtue of Sec 7(1)(b) ‘link to’

for the year of assessment 2022 because:

• He was present in Malaysia for less than 182 days

for the year 2022, and
• There is a link and he stayed in Malaysia for more
than 182 consecutive days in 2023.
 Sec 7(1)(c)

A person is a tax resident if

he was present in Malaysia for a period(s) of 
90 days, and

3 out of 4 immediately preceding basis year he

is either RESIDENT or PRESENT IN MALAYSIA 
90 DAYS
 Example
Scenario 1 2 3
Year
2019 Resident Resident Not resident, 92 days

2020 Resident Resident Not resident, 100

days
2021 Not resident, Not resident, 2 Not resident, 3 days
90 days days
2022 Not resident, Resident Not resident, 90 days
3 days
2023 100 days 60 days 100 days

Determine Amir Khan’s resident status for year 2023, based

on the scenario 1 to 3 above.
 Example

Answer:
For scenario 1 and 3, Amir Khan is a resident by
the virtue of Sec 7 (1)(c) of ITA 1967.

For scenario 2, Amir Khan is not a resident

because he is in Malaysia for only 60 days in
the said year.
 Sec 7(1)(d)

A person is a tax resident if

he is a resident in the following year, and

3 immediately preceding years he is a

resident
 Example
Gary, has the following records of stay in Malaysia:
11/10/2019 – 31/12/2019 82 days
2020 Whole year
1/1/2021 – 30/9/2021 More than 182 days
1/4/2022 – 4/4/2022 4 days
1/4/2023 – 31/12/2023 More than 182 days

Advise Gary on his resident status for the basis year 2019,
2020, 2021, 2022 and 2023.
 Example
Year Resident Reason
status
2019 Resident Sec 7(1)(b). Link to 2020 & > 182
consecutive days in 2020
2020 Resident Sec 7(1)(a). More than 182 days
2021 Resident Sec 7(1)(a). More than 182 days
2022 Resident Sec 7(1)(d). Resident in the last 3
preceding years (2019-2021) and
resident in the following year (2023)

2023 Resident Sec 7(1)(a). More than 182 days

 Exercise 1
Kylie Jenner came from the US on 21/6/2018 to evaluate the
performance of her company’s outlets in Malaysia. She was
present in Malaysia for the following periods. Determine her
resident status.

21/06/2018 – 20/09/2018
07/03/2019 – 31/12/2019
01/01/2020 – 05/01/2020
06/06/2021 – 07/09/2021
2022 – Not in Malaysia
11/05/2023 – 09/11/2023
 Exercise 2
Ye-Jin, a Korea citizen comes to Malaysia for the first time on 21
December 2017 and left permanently on 29 June 2023. Her periods
of stay in Malaysia were as follows:
Year Period of Stay in Malaysia
2017 21.12.2017 - 31.12.2017
2018 01.01.2018 - 15.08.2018
2019 10.01.2019 - 20.03.2019
01.06.2019 - 31.07.2019
16.09.2019 - 20.11.2019
2020 Not in Malaysia
2021 01.03.2021 - 30.04.2021
21.09.2021 - 31.12.2021
2022 27.12.2022 - 31.12.2022
2023 01.01. 2023 - 29.06.2023
Required: Determine the residence status of Yi-Jin for each basis year,
giving your reasons to support the answer.
Thank you..

Happiness comes
from within..
TOPIC 4

EMPLOYMENT INCOME
Employment Income

• Assessable under Sec 4(b) of ITA 1967

• Sec 2:
Employment is said to be taken place when
• the relationship of master and servant subsists;
• any appointment or office subsists, for which remuneration is
payable.
Employment - Definition

“Employer”:
a. where the relationship of master and servant subsists, the master;
b. the person who is responsible for paying any remuneration to the
employee.

“Employee”:
a. where the relationship of master and servant subsists, the servant;
b. the holder of the appointment or office which constitutes the
employment.
Employment vs Profession

• A profession (contract for service) is a series of appointments,

which may be conducted simultaneously during a period of
time.

• An employment (contract of service) involve appointment to

an office which usually maintained for sometime and which
ends with resignation, retirement, termination or the death of
employee
Employment vs Profession

Several consideration from preceding cases :

1. Control - existence of control is a strong indication for employment,

but not really relevant for professionals.

2. Substitution of staff – employees not free to replace with other people

3. Contract of engagement – would signify the status whether it is an

employment or self employment.
Employment vs Profession

5. Nature of remuneration and benefits – employee is normally paid a fixed

remuneration, contribution to EPF, SOCSO, medical benefits, leave pay

6. Place of work and integration – for employee, it is restricted and specified. No

freedom when and where to work

7. Sharing of financial risk and success – employee only share profit but not risk

8. Employer provide the employee necessary tools and equipment required to

perform his duties.
Derivation of Employment Income

Employment income would be taxable only if employment income deemed to

be derived from Malaysia
1. Employment is exercised in Malaysia & leave attributable;
2. Employment performs outside Malaysia duties incidental to the exercise of
the employment in Malaysia;
3. Director of a company resident in Malaysia;
4. Employment exercised aboard a ship or aircraft operated by a Malaysian
resident;
5. Malaysian citizen employment in the Malaysian public services or the
service of a statutory authority outside Malaysia & the leave attributable.
Income Tax Exemption

Pre-requisite:

• a) A non-resident;
• b) has exercised employment;
• c) for a period/periods not exceeding 60 days
Basis of Assessment

• S 25 (1) new - Change to Basis Period to which Employment Income is

related
• “Any gross income from employment income which is receivable for
any particular period shall be treated as income in the year of receipt
and taxed accordingly.”
Gross Employment Income: S13(1)

S13(1)(a) All income that is convertible into money [Monetary]

S13(1)(b) All income that is not convertible into money

[BIK]
S13(1)(c) Accommodation
S13(1)(d) Contribution by employer to unapproved funds & income
received there from

S13(1)(e) Compensation for loss of employment

Section 13(1)(a): Monetary

• Covers money received and benefits convertible into money: [PR No.
5/2019 Perquisites From Employment]:

• Salary, leave pay, fee, commission, bonus, gratuity or perquisite.

• Reimbursement.
• Allowance e.g. transport/ entertainment allowance
• Payment made on behalf of the employee by an employer [PR No.
2/2006 Tax Borne by Employers].
 Gratuity

❑ Recognition of services rendered upon resignation or retirement

❑ Full exemption (Para 25 Sch 6) if satisfied following conditions:
a. Retirement due to ill health; or
b. reaching compulsory retirement age (55 years or any other age) and serve
the same company for 10 years immediately prior to retirement
c. Government servant (retirement & termination) para 25A & 25B, Sch 6.
❑ Partial exemption: Effective YA 2016, employee who received gratuity, is
eligible for an exemption of RM1,000 for each completed year of service,
working with the last company in a group.
 ESOS (Employees Share Option Scheme)

❑ Allows an employee an option to acquire shares in a company at a fixed price and with a right to
exercised the option at some future dates.
❑ The option value that constitutes ‘perquisite’ under 13(1)(a) is the excess of the market price over the
option price.
❑ WEF 2006, market price is the lower of market value of option granted and market value of option
exercise.
❑ Option value :
Option Value = Market Price – Option Price

Lower of

MV option granted MV option exercised

 ESOS (example)
❑ Under the company’s Employees Share Option Scheme, Mr Elon was, on 1 February
2023, offered an option to take up 3,000 shares at RM1.00 each. The market value of
the shares on 1 February 2023 was RM2.50 per share. He exercised the option on 31
August 2023 at a market price of RM4.00 each. Calculate the share option income of
Mr Elon for YA 2023.
Option Value = Market Price – Option Price (01/02/2022 [RM1])

Lower of

MV option granted MV option exercised

01/02/2023 [RM2.5] 31/08/2023 [RM4]

❑ Thus, the option value: RM(2.50-1.00) = RM1.50

❑ Share Option income: RM(2.50-1.00) x 3000 = 4,500
 Allowances and Other Receipts

❑ Allowances (exemption):
Travelling allowance, petrol cards, petrol allowance or toll payment given to employee up to
RM6,000 per year for travel during the official duties.
Childcare allowance up to RM2,400 for children age < 12.
Parking and meal allowance given to employee.
Exemption of RM2,000 a year be given to staff awards
❑ Payment received as a reward for personal qualities (marriage & passing exam) & payment
to meet personal distress (compensation for house damage) is not taxable.
❑ Payment to an employee by a person other than the employer (e.g. tips)?
 Self-Thinking 1

Anne worked as a waiter in Starbucks. Anne was very pleasant, kind and helpful
to customers in recommending dishes to customers. Thus, she usually receive
tips and souvenirs from them. In year 2023, Anne received tips and souvenirs
amounting to RM8,000. Anne later got married and the employer gave her a cash
present of RM18,000.

Explain, with reasons, the tax treatment of the receipts of RM8,000 and
RM18,000.
 Allowable Deductions

❑ Basically, all expenses which incur wholly & exclusively by employee in the production
of employment income

❑ From case law, it is found that these specific expenses are allowable:
a. Entertainment expenses that incur wholly & exclusively, provided the employer give
the entertainment allowance
b. Professional/clubs subscription that is required in the performance of duties
c. travelling expenses to visit clients
d. clothing- uniforms, only the renewal cost is allowed, initial cost is not allowed

❑ Specific expenses that are not allowable includes commission paid to employment
agencies and self improvement expenses
 Self-Thinking 2

Mr. Zack, an engineer is employed by ZYZ Bhd. since 31 August 2014. For the year 2023, he was paid a gross
monthly salary of RM8,000, until his service is terminated on 31 December 2023. He also received the following
income for the year 2023:
• A two months bonus for the 2022 service.
• Travelling allowance amounted to RM6,500 for official duties.
• Childcare allowance amounted to RM8,400.
• Entertainment allowance amounted to RM5,000 (Entertainment expenses incurred RM7,000)
• Reimbursement of utility bill amounted to RM700 from ZYZ Bhd.
• Reward of RM1,500 for passing exam
• Gratuity of RM55,000 for the years of service with the company
• Tax liability amounted to RM1,000 for the YA2022 paid by ZYZ Bhd.
Compute the amount of Section 13(1)(a) income for Mr. Zack for YA2023.
 S13(1)(a): Mr Zack

Zack
Computation of total employment income for the year of assessment 2023
Section 13(1)(a)
Salary (RM8,000 x 12) 96,000
Bonus (year of receipt) 16,000
Travelling allowance for official duties (exempted RM6,000)
500
Childcare allowance for official duties (exempted RM2,400)
6,000
Entertainment Allowance
5,000
Reimbursement of utility bill 700
Reward for passing exam (Not taxable) -
Gratuity (RM55,000 – RM1,000 x 9 years) 46,000
Tax liability 1,000 171,200
Section 13(1)(b): Benefit In Kind

• The benefits and amenities not convertible into money. [PR No. 11/2019]
• E.g. Car, fuel, furnishing, domestic servant, driver.
• Exempt benefits: Eg: medical, dental, childcare, free transport, telephone,
food, drinks or goods & services offered at a lower price.

• Leave passage:
Within Malaysia – three passage exempted
Outside Malaysia - not exceeding one passage subject to maximum of RM
3,000.
Car and Fuel

The value of the motorcar is reduced to ½ of the prescribed value if the motorcar is > 5 years old.
Furnishing
Servant, Gardener, Driver
 Self-Thinking 3

Rama is working as a manager in Time Sdn Bhd. He was provided with a car
which cost RM75,000, when it was bought on January 2022. Fuel was also
provided by the company.
Compute his S 13(1)(b) benefits if:

(a) He was provided with the car since 2023.

(b) He only uses the car for 6 months.
(c) The car is more than 5 years old.
Self-Thinking 4
ZYZ Bhd also provides Mr. Zack, with a six-year-old car (cost when new: RM90,000) for the period 01
January 2023 to 30 April 2023. From 1 May 2023 he was provided with a new car costing RM150,000.
Free fuel is also provided for him by the employer. His benefits and the respective costs incurred by
the employers for the year 2023 are as follows:
RM
Mobile Phone (rental and charges) 2,000
Furnishing- Fully furnished (from May 2023) 8,000
Gardener’s wages (from May 2023) 8,400
Domestic servant’s wages (from May 2023) 9,000
Driver’s wages (from January 2023) 6,700
Childcare benefit (Child 7 year old) 24,000
Insurance premium (benefit to employee) 12,000

Compute the amount of Section 13(1)(b) income for Mr. Zack.

Self-Thinking 5

Month Location RM
January Langkawi, Malaysia 2,120
March Thailand 2,000
April Penang, Malaysia 1,160
June Melaka, Malaysia 80
September Kuching, Malaysia 1,400
December London 5,000
Leave passage provided to Mr Zack in 2023 are as stated above. Compute the
amount of leave passage under Section 13(1)(b) income for Mr. Zack.
Section 13(1)(c): Accommodation

• Either the defined value (rental value/rateable value/economic rent) or 30%

of the S13(1)(a) income, whichever is lower.
• The defined value can be reduced if the accommodation is:
➢ shared with other employees; or
➢ use only part of the accommodation.
• Hotel & hostel accommodation is valued at 3% of the S13(1)(a) income
• Accommodation is provided for < 12 months?
• Directors (not service directors) of controlled companies? Full amount of
defined value
• PR No. 3/2005
 Self-Thinking 6

• Mr. Zack was transferred from Johor Bahru to Kuala Lumpur on 1 January 2023. For
the first four months, he was provided accommodation in the Puteri Pacific Hotel
and for the rest of the employment period, he was provided with a rented
bungalow.
• The costs incurred by the employer for the year was as follows:

RM
Hotel accommodation (4 months) 6,000
Rented Bungalow (6 months) 14,000

▪ Calculate the assessable value of living accommodation under S13(1)(c)

 Self-Thinking 7

• Ah Tan is a technical manager in a manufacturing company and earned the following:

Salary RM75,000
Bonus RM15,000
• He was also provided with unfurnished accommodation. The rent paid by the employer was
RM19,200 for the year. Calculate the assessable value of living accommodation under each case:
a. The accommodation was provided for the whole year;
b. The accommodation was provided for only 6 months in the year;
c. The accommodation was shared with another employee for the whole year; and
d. The accommodation was too large for his needs and he was required to use it to advance the
interest of his employer. It was agreed by the IRB that he was entitled to a 1/3 rebate on the
defined value.
Section 13(1)(d):
Contributions to Unapproved Funds

• Contribution by employer to unapproved funds, scheme or society

• Income received from unapproved funds will be fully assessed in
the year of withdrawal.
• Only the employer portion are taxable under S13(1)(d)
• The employee portion is exempted.
• The interest for the employer and employee portion are taxable
income under S 4(c)
• Approved fund is fully exempted (eg: EPF)
Self-Thinking 8

ZYZ Bhd has operated an unapproved retirement scheme since 1992. On 30 September 2023,
the scheme was wound up. Mr Zack thus received the following income:
RM
Employer cumulative contributions 43,000
Employee cumulative contributions 25,000
Interest 12,000

Determine the amount assessable on him, under S13(1)(d).

Section 13(1)(e):
Compensation for Loss of Employment

• Full exemption for employment terminated due to ill-health.

• Partial exemption, RM10,000 per completed year of service with
the same employer in the same group.
• PR No. 1/2012
Self-Thinking 9

• In December 2023 Mr Zack received compensation for loss of

employment amounted to RM77,000. (Please refer back to Self-Thinking 2
for determination of exemption)

• Required: Compute the total employment income of Mr. Zack under

S13(1)(e) of ITA 1967 for the YA 2023.
Self-Thinking 10

Discuss on the chargeability to income tax on the payments/ benefits received by an

employee and the section under which it would be taxable:
1. Pecuniary liability of employees paid by the employer, e.g. income tax payment
2. Credit card facilities
3. Loan interest
4. Recreational club membership
5. Tuition or school fees of child
6. Life insurance premium
7. Gardener, driver, domestic help or guard
8. Assets given free of charge or sold at a discount
9. Gift vouchers
10. Gift of personal computer to the employee by the employer
11. Excellent service award
12. Professional subscriptions
Self-Thinking 11

Ana is employed as a managing director at a multinational company in

Malaysia and her salary is RM180,000 per annum. She is provided with
unfurnished living accommodation for which the company pays rent
amounting to RM60,000 per annum. Ana is not provided with a company car
but she has been given the option of:
1. a driver provided by the company; or
2. the reimbursement of the driver’s salary amounting to RM15,600 per
annum.
State, with reasons and supporting calculations, which of the above options
Ana should choose from a tax perspective.
Thank you..

Any Questions….?
INVESTMENT INCOME
TOPIC 5
TYPES [SEC 4(C) – SEC 4(F)]
1. Dividend income [sec 4(c)]
2. Interest income [sec 4(c)]
3. Discount income [sec 4(c)]
4. Rental income [sec 4(d)]
5. Royalties income [sec 4(d)]
6. Pension income [sec 4(e)]
7. Annuity income [sec 4(e)]
8. Other income [sec 4(f)]
DIVIDEND INCOME [S. 4(C)]
▪ Distribution of a company’s profits to shareholders.
▪ Single-tier tax system
▪ The corporate tax paid on a company’s profits will be a final tax
▪ Dividends distributed to shareholders will be exempted from tax and no
related expenses would be deductible
▪ Tax computation would become simpler.
▪ Assessment - Paid; credited; distributed
INTEREST INCOME [S. 4(C)]
Payment by reference to time for the use of money
A compensation for delay payment.
All interest income received by individuals from moneys deposited in all
approved financial institutions (include all licensed banks and financial institutions)
in Malaysia are tax exempt.
Assessment - when it is received.
 DISCOUNT INCOME [S. 4(C)]
▪Where a person acquired the bill of exchange (or promissory notes) before
maturity at an amount less than its face value.
▪Profit accrued by holding the bill until maturity or sale before maturity is called as
discount.
▪Difference between price paid and the sum realized on maturity.
▪Receipt basis - it will be assessed on accrual basis (time apportionment).
▪Exemptions:
▪ Securities or bonds issued or guaranteed by the government
▪ Debentures other than convertible loan stocks approved by the SC
▪ Malaysian savings bonds issued by Bank Negara in the hands of individuals, unit trusts and listed closed-
end fund
RENTAL INCOME [S. 4(D)]
 Sum received for the occupation of any premises or for the hire of anything.
 All rental income will be assessed under one source (total of all rental income
from all landed properties) (PR 4/2011)
 Deductible expenses - repairs & maintenance, insurance, & interest on a loan to
acquire property.
▪ Rental income is treated as business income [S4(a)] if the person actively provide
ancillary or support services/ facilities to the properties let
▪ Example: Security guard services, Cleaning or house keeping, maintenance of
common property, and landscaping
RENTAL INCOME [S. 4(D)]
Income
✓ Advance income is assessable in the year of receipt
✓ Deposit is not assessable (assessable in the year of conversion)
• Allowable expenses
✓ Cost of repair and maintenance;
✓ Insurance premium on fire/burglary;
✓ Cost of supervision and collection of rent;
✓ Interest paid on loan taken to finance the property;
✓ Cost of renewing rental agreement;
✓ Assessment charge & Quit rent; &
✓ Cost during temporary non-occupation.
• Non-Allowable expense
✓ Cost of obtaining first tenant-advertisement, agent fees & rental agreement;
✓ Renovation & Purchase of fixed asset.
ROYALTY INCOME [S. 4(D)]
▪ Sums received as consideration for the right to use: copyrights, or scientific works, patents,
designs, know-how
▪ Basis of Assessment: on the date when an enforceable obligation is created.
▪ Deduction: The same rules applies (wholly & exclusively test and sec 39)
▪ Exemption of royalty income (sch 6, Para 32) for resident individual:
▪ RM10,000 from royalty/payment in respect of publication, the use/right to use any artistic
work (other than original painting), or royalty from recording disc/tapes.
▪ RM12,000 from officially requested by MOE, MOHE or Attorney General’s Chambers for
translation of books or literary works
▪ RM20,000 from royalty/ other payment for the publication, use/right to use any literary
work or any original painting or any musical composition
▪ Full exemption on cultural performances approved by the Ministry
PREMIUM INCOME [S. 4(D)]
▪ Definition: a form of once and for all payment made by the lessee as a
consideration for the right to enter into a lease agreement or for the grant of the
lease on immovable properties.
▪ Premium can also be paid by installments.
▪ It is assessed on a receipt basis. Received means that the landlord is able to
obtain the receipt on demand.
▪ Derivation of income: immovable properties are located in Malaysia.
▪ Only the landlord is assessable to tax
▪ For tenants, premium paid is not deductible expenses because it is a capital
expenses.
 PENSIONS INCOME [S4(E)]
▪A periodical payment made to individual who has permanently ceased to exercise
an employment.
▪Exemption:
▪ If he/she retires at the compulsory age of retirement under any written law; or
▪ If he/she retires earlier due to ill health.

▪For optional retirement, his/her pension will be taxed until the compulsory age of
retirement.
▪If a person received more than one pension, only the highest pension will be
exempted.
 ANNUITY INCOME [S4(E)]
▪Defined as a definite sum of money payable on a regular basis, either:
▪ in perpetuity for life (a recurring annual payment), or
▪ fixed term under a contract, will or settlement.
▪Examples:
▪ policy taken out with an insurance company;
▪ bequeathed by way of a gift or legacy; or
▪ consideration for sale of an asset or surrender of a right.
▪Annuity income is exempted if it is received from Malaysian life insurers and
takaful operators.
 OTHER GAINS OR PROFITS [S4(F)]
A general sweeping-up section to cover receipts of an income nature not falling
within S4(a) to (e).
Casual or occasional nature:
a. commissions received for assistance in buying/selling of properties;
b. fees received for introducing clients/customers to businessmen;
c. amount received from offering occasional advice, consultation or assistance
of any kind; and
d. amount received from occasional television appearances, broadcasting,
lectures, newspaper articles.
 EXEMPT INCOME
Receipt falls within the scope of the charging section but is taken out of that scope
by a specific provision in the Act.
Exemptions in Sch. 6:
➢ Official Emoluments or Income of a Ruler; consular officers;
➢ Income of the Government or a local authority;
➢ Approved Religious Institutions and Charities;
➢ Death Gratuities and Injury Compensation;
➢ Registered Trade Unions e.g. MTUC;
➢ Education Allowances; Scholarships or other similar grant.
SELF-THINKING 1 4(C): SELF-CHECK MS. JENNY
Jenny derived the following income for the year ended 2023:
▪Malaysian dividend amounted to RM8,000
▪Foreign dividend (remitted to Malaysia) amounted to RM1,550
▪Interest from Maybank for a 15-month fixed deposit amounted to RM3,300
▪Dividend from Zenco (UK) Pte Ltd amounted to RM8,800.
▪Dividend of RM1,440 from Decorp Sdn Bhd
▪Interest on fixed deposit with a finance company in Malaysia amounted to
RM2,370.

Based on the above information you are required to compute the S4(c) income of
Jenny for the year of assessment 2023.
SE SELF-THINKING 2): SELF-CHECK MS. EDWINA
Edwina is 40 years old teacher. To fill up her spare time, she writes a book on
Malaysian Education System and receives royalty income of RM6,000 from her
book. In addition, she also receives RM13,000 translation fees for translation of
literary works at the special request of the Ministry of Education. Apart from that
she recorded a tape on patriotic songs for children and music for elementary
schools. She received RM10,000 as royalties in respect of the recording of tapes.

Based on the above information you are required to compute the royalty income of
Edwina for the year of assessment 2023.
S SELF-THINKING 3
Nehal owns a house which he lets out for the first time. The details of the income and expenses for the
house are as follows:

RM RM
Annual rental 32,000
Advertising cost of obtaining first tenant 1,000
Insurance premium on fire 640
Repairs and Maintenance 1 ,467
Cost of supervision and rental collection 250
Quit rent and assessment 876
Housing loan interest 7,250
Renovations 35,790
(47,273)
Adjusted loss 15,273

Required: Compute the amount of adjusted other income of Nehal under Section 4(d) of ITA 1967,
for the year of assessment 2023.
 SELF-THINKING 4 4(E) – 4(F): SELF-CHECK MR. RAJ
Mr. Raj retired permanently from a government service on 31 May 2023, on his 60th
birthday and he receives monthly pension amounted to RM2,570. Raj also derived
the following income for the year of assessment 2023:
Annuity from Warna Insurance Sdn. Bhd. amounted to RM24,000.
Payment for occasional television appearances amounted to RM4,300.
Fees received for introducing clients to businessmen amounted to RM5,000.
Annuity of RM 4,500 from his late father’s estate
Annuity of RM 2,000 from Malaysian Life Insurers
Amount of RM 1,500 received from occasional lectures
Lottery winning amounted to RM1 million.
Based on the above information you are required to compute the taxable income of
Mr. Raj for the year of assessment 2023.
ADDITIONAL EXERCISE 1
Gopal, a resident in Malaysia, is a freelance writer of articles for the Malaysian newspapers and
author of several books. During the year 2023, he also translated a literacy work at the specific
request of the Attorney General’s Chambers. His income from royalties and expenditure for the year
ended 31.12.23 is as follows:
RM
Income:
Translation of literacy works 24,000
Publication of books written in that year 140,000

Expenditure:
Editing and proof reading 9,000
Typing expenses 12,000
Stationery cost 4,000

Required:
Compute Gopal’s adjusted income from royalties for YA2023.
 ADDITIONAL EXERCISE 2
Jay provided the following information regarding his residential property that has been rented out for a
long time. For 2023, rental is RM800 per month for January till June, vacant from July till September and
again lease out at RM800 per month from 1.10.2023. Expenses related to this property for year 2023
are as follows:
RM
Quit rent and assessment tax 350
Insurance 500
Instalment payment (include interest RM3,500) 8,400
Repainting (July 2023) 1,200
Repair 500
Agent fees for getting the new tenant 1,000
Install new metal grill for windows* 2,500
*Due to frequent breaks in the area, new metal grills were installed at the request of the new tenants

Required: Compute adjusted income for rental income in YA 2023.

Thank You!

Life doesn’t allow us to go back and

fix what we have done wrong in the
past, but it does allow us to live
each day better than our last.
Topic 6

PERSONAL RELIEFS AND

REBATES
Introduction

• Reliefs are allowed as deductions from the total income in arriving at

chargeable income.

• Only available to resident individuals

• Where personal reliefs exceed the taxpayer’s total income?

• Rebates are allowed against the tax liability.

• PR 5/2021
Joint vs Separate Assessment

• The IRB give freedom to the taxpayer to choose whether to opt for joint
assessment (JA) or separate assessment (SA).

• JA - income of a husband/wife is added together with the

wife/husband in order to arrive at the chargeable income.
• SA - husband & wife assessment is done separately.
• Decision to elect for JA or SA should be based on the lower tax payable.
• The difference in tax payable arises because JA & SA would attract
different relief and rebates.

• The aggregation occurs at the total income stage.

Joint Assessment: Conditions

1. Husband and Wife Living Together

2. Wife/husband must have total income to be aggregated with
her/his husband/wife.
3. If wife/husband is a NR for the YA, she/he must be Malaysian
citizen.
4. The wife/husband must elect to be jointly assessed with the
husband/wife.
Types of Personal Relief (Refer to Appendix & IRB website)

i. Individual and dependent relatives [S46(1)(a)]

ii. Medical expenses for parents [S46(1)(c)]
iii. Basic supporting equipment [S46(1)(d]
iv. Disabled individual [S46(1)(e)], disabled spouse [S47(1)(b)]
v. Fees spent for course of study [S. 46(1)(f)]
vi. Medical expenses for serious disease [S. 46(1)(g)]; Medical examination [S.
46(1)(h)]
vii. Purchase of books, journals, magazines [S. 46(1)(i)]; Personal computer [S.
46(1)(j)]
viii.Amount deposited into SSPN [S. 46(1)(k)]
ix. Purchase of sports equipment [S. 46(1)(l)]
x. Payment of monthly broadband subscription bills [S. 46(1)(m)]
Child Relief

• “Child”:
i. a legitimate child;
ii. a step-child; or
iii. an adopted child.

• The child will not qualify if:

i. married;
ii. has total income exceeding the relief due;
iii. above 18 years of age but not studying full time; or
iv. the parent is not maintaining the child;
Rebates (PR 6/2018)

1. Self Rebate
▪ When a chargeable income of a person is ≤ RM35,000, a rebate of RM400
would be given.
▪ In joint assessment, where chargeable income is ≤ RM35,000, both
husband and wife is entitled for rebate of RM400 each, a total of RM800.
2. Religious Payment
• Any religious payment like zakat, fitrah or any other Islamic religious
payment which is compulsory
3. Departure levy for umrah travel / religious travel for other religions

*If total rebates > the income tax payable?

Donation

Approved donations [s44]

• Cash Donations to approved institutions (10% restriction) or government (no
restriction)
• Donations of artifact, manuscript or painting to government
• Cash donations to approved libraries (restricted to RM20,000)
• Cash / goods donations for public facilities by individual
• Cash/ in kind donations for healthcare facilities by individual: restricted to RM20,000
• Donations of painting to National/ State Art Gallery
• Cash/in kind donations to approved sports activity (10% restriction)
• Cash/in kind donations to approved project of national interest (10% restriction)

Note: Any unutilised donation is a permanent loss

 Self-Thinking Q1: Jehan & Julia
Jehan and Julia, both disabled persons incurred the following expenditure for the year
ended 31 December 2023:
Jehan (RM) Julia (RM)
Medical expenses for serious diseases 4,500 -
Medical expenses for fertility treatment - 8,080
Vaccination expenses 2,120 -
Complete medical examination 1,200 -
Contribution to the SOCSO 300 200
Private Retirement Scheme (PRS) 3,400 2,200
Zakat 300 200

Compute the amount of relief available for Jehan and Julia for the YA2023, under a separate
and joint assessment, assuming Julia is the one who elects to be assessed with her husband.
Thank you...

When
something
is gone,
something
better is
coming…
TOPIC 7

BUSINESS INCOME
Introduction

• Assessable under sec 4(a).

• Business is defined in sec 2 of ITA 1967 to
include profession, vocation, and trade and
every manufacture and adventure or
concern in the nature of trade, but excludes
employment.
Profession

Defined as being ‘a purely intellectual skill, or

manual skill (for instance: painting, sculpture or
surgery) which is controlled by intellectual skill of
the operator
e.g. doctors, lawyers, accountants, artists and
journalists
Vocation

• Defined as ‘the way in which an individual passes

his life’
• E.g. professional bookmakers (attends football
matches and makes systematic bets), self employed
dramatis, musicians, professional beggars.
Trade and Manufacture

• Normally involves either repetitious purchasing and

selling of purchased goods or producing and selling
manufactured goods, with intention of making
profits.
• Manufacturing involves three subsequent stages
which are input, process and output. Original raw
materials undergo transformation to produce a new
and distinct product.
Adventure or Concern
in the Nature of Trade

• Refers to ‘isolated’ buying and selling (trade)

transactions.
• E.g. Jamal bought a house using bank loan. A few
months after completing the transaction, he
advertised it for sale. He sold the house and gain
RM100,000.
• The isolated transaction is an adventure in the
nature of trade as several badges of trade exists.
Badges of Trade

• Characteristics of trade to distinguish gains arising

from the disposal of investment vs gains from
trading or from an adventure or concern in the
nature of trade.

• Existence of one or more of ‘badges of trade’

indicates trading or adventure or concern in the
nature of trade.
 Badges of Trade

i. Profit-seeking motive
ii. How the asset is acquired
iii. The subject of the realisation
iv. Modification of the asset (or supplementary work)
v. The length of the period of ownership
vi. How a sale is secured
vii. The frequency or a number of similar transactions
viii.Trading interests in the same or similar field
ix. The method of financing
x. Circumstances responsible for realisation of an asset
 Issues
• Mutual Transactions (i.e. a person trade with himself) is
not income and not taxable.
• Income from Illegal Activities/business: taxable under
4(a) – [Mann v Nash]: income from legal and illegal
machine both taxable
• Illegal expenses: deductible
• Hobbies: depend on each case, use badges of trade
[Haws v Gardiner]: breeding puppies
• Gambling: depend on each case, use badges of trade
[Partridge v Mallandaine]: systematic and habitual
betting on horses.
Accessibility of Receipt

• Key features of income:

i. It must “come in” to the recipient;
ii. The receipt must be in the form of money;
iii. It must be received as income in the hands of the recipient;
iv. The characteristics of periodicity, recurrence and regularity;
v. Receipts which are the result of a normal incident;
vi. compensation for a revenue asset or loss of income flows.

▪ Business income is taxed when it becomes due and payable.

▪ To be taxable, income must be earned or realised.
Capital or Revenue Receipts

a. Payments for the sale of the fixed assets of a business are capital
receipts.

b. Payments received for the destruction of the recipients’ profit-

making apparatus are receipts of a capital nature.

c. Payments in lieu of trading receipts are of a revenue character.

d. Payments made in return for the imposition of substantial

restrictions on the activities of a trader are of a capital nature.

e. Payments of a recurrent nature are more likely to be treated as

revenue receipts.
Derivation of Business Income

• Business income is taxable if

• a business source exists,
• it is income in nature and
• the income is accrued in or derived from or deemed
to be derived from Malaysia.
• Gross income from business which is not attributable to
the operations of the business carried on outside
Malaysia shall be deemed to be derived from Malaysia
[sec 12(1)(a)]
Derivation of Business Income
• Business income is attributable to operations of the
business carried on outside Malaysia if one or more of
the following factors exists:
• Contracts are concluded outside Malaysia
• Stocks are maintained outside Malaysia from which orders
are filled
• Passing of ownership and risk of trading stocks takes place
overseas
• The business employs capital in overseas, and the capital is
being used to earn the profits or is lent to others to earn
the profits
• Sale proceeds are received overseas
• Services are rendered outside Malaysia
Derivation of Business Income

• If the business consists wholly or partly of manufacturing,

growing, mining, producing or harvesting in Malaysia of any
article, product or produce or other thing, the sales of such
articles or produce shall be deemed to be derived from
Malaysia [sec 12 (1)(b)]
• Gross income is either based on sale value OR market value
(in the event sale value does not apply) of the article,
product or produce sold overseas
• Business income received by financial institution and
insurance companies, gross income of the business
(wherever derived) is deemed to be derived from Malaysia
[sec 12(2)]
Basis Period for Assessment of Income
Where a company, limited liability partnership, trust body or co-operative
society commences operation on a day in a basis year for a YA (first YA)
and makes up its account:
a. for a period of < 12 months ending on a day in that basis year, that
period shall constitute the basis period for the first YA;
b. for any period of months ending on a day in the immediately
following basis year (second basis year) that period shall constitute
the basis period for the YA (second YA) immediately following the
first YA, these shall be no basis period in relation to any of its
sources of income for the first YA; or
c. for a period of > 12 months ending on a day in the basis year
immediately following the second basis year, that period shall
constitute the basis period for the YA immediately following the
second YA and there shall be no basis period in relation to any of its
sources of income for the first YA and the second YA.
Commencement of the business
• Actual commencement of business is important because;
• To determine basis period in relation to the assessment year
• To identify the expenditure incurred before the date of
commencement
• To identify capital expenditure incurred
• To allow capital allowance against the business income in relation to
the relevant year of assessment
• Date of actual commencement need not to be the same as
date of incorporation.
• A business is deemed to have commenced on the day it
embarks on activities directly related to the generation of
income from the business, not activity merely preparatory
to the commencement of the business
Tax Accounting

The accounting profit may not necessarily equal the taxable income:

• income shown in the accounts may not be assessable for tax

purposes, e.g. exempt income;
• items not included in income for accounting purposes may be
assessable for tax purposes, e.g. a gain arising on the sale of land
held for many years;
• income may be derived for tax purposes in an earlier or later year;
• items which are treated as expenses for accounting purposes may
not be allowable deductions, e.g. depreciation;
• items not written off as expenses in the accounts may be
deductible, e.g. costs of supporting equipment for disable employee.
Deductible Expenses
An expense is allowable if it is
• Specifically allowed under sec 33, 34 or 35 of the ITA1967
• Not specifically prohibited under sec 39 of the ITA 1967 and meets the general
deductibility test as per sec 33(1)
The general provisions for deductions stipulated under Sec 33:
• The expenditure must be in respect of the business activities carried on by the
taxpayer
• The expenditure incurred for the business activities must be incurred in the
accounting period
• The expenditure must be wholly and exclusively incurred in the production of
gross income
• The expenditure must not be personal or private in nature
• The expenditure claimed should not be specifically prohibited by any provisions
of the ITA
Tests Applied for Granting Deductions

• Is the expenditure of a revenue or capital nature?

• Is the expenditure in respect of the business
activities?
• Is the expenditure authorised or prohibited by any
provision of the Act?
• Is the expenditure incurred in the relevant year?
• Is the expenditure W&E incurred in the production of
gross income?
Deductible Expenses S 33(1)

Outgoings and expenses W&E incurred in the production

of gross income:
✓ Wages and salary
✓ Interest payments
✓ Rent payable
✓ Repairs
✓ Insurance premiums - inventory
✓ Bad debts & specific provisions
 Prohibited Expenses (S39)

a. Domestic or private expenses.

b. Expenses not wholly and exclusively incurred.
c. Any capital withdrawn.
d. Amount paid to unapproved fund.
e. Expenditure for which allowances are given under
different schedules.
f. Contract payments, special classes of income, Interest
or royalty payable to NR which withholding tax has not
been deducted.
 Prohibited Expenses (S39)

g. Leave passage benefit.

Exception: leave passage expenditure incurred by
employer for employees and their immediate family
members to attend a yearly event held in Malaysia
h. Lease rentals in respect of a motor vehicle
Restricted to RM100,000 (for new vehicle and total cost
< RM150,000)
• If the above conditions not fulfilled, restricted to
RM50,000
i. 50% of entertainment expenses (next slide).
Entertainment Expenses [100% deductible]

i. Entertainment provided to employees

ii.Entertainment business
iii.Promotional gifts at foreign trade fairs
iv.Promotional samples
v.Promotional gifts in Malaysia
vi.Cultural or sporting events
vii.Wholly related to sales - excluding suppliers:
➢ Expenses on food and drink for launching of a new product.
➢ Free gifts for purchases exceeding a certain amount.
➢ Lucky draw prizes given to customers for purchases made.
Specific business deductions [s34 & 35]

• Bad debts
• Employer’s contribution to an approved scheme/fund
• Equipment of disabled employees
• Translation and National Language publications
• Provision of library facilities
• Community welfare
• Child care facilities
• Managing musical and cultural group
• Sponsoring arts or cultural activity
• Provision of scholarships to students
Double deductions

• Employment of disabled employees

• Insurance premium for import of cargo
• Training of handicapped persons
• Export credit insurance premium
• Freight charges
• Research expenditure
• Overseas expenses for promotion of tourism
• Expenditure for approved training
• Expenses incurred in international trade fairs
• Fees incurred in packaging design
• Expenditure on advertising Malaysian branded products
• Expenses promoting brand names
• Halal certification
 Thank you..

F.E.A.R has two meanings:

‘Forget Everything And Run’
or
‘Face Everything And Rise’.
The choice is yours..
 TOPIC 8:
CAPITAL ALLOWANCES –
PLANT & MACHINERY
Plant and Machinery (P&M) Allowances
 Meaning of P&M - No definition of plant in the Act
 Case Law:
“Whatever apparatus used by a businessman for carrying on his
business but does not include his stock–in-trade which he buys or
makes for sale, but all goods and chattels, fixed or moveable, live or
dead, which he keeps for permanent employment in his business.”
 Examples: factory equipment, heavy machinery, motor vehicles,
office equipment and computer system.
 The plant and machinery must not be part of the premises, must be
used to carry on the business and must not be stock-in-trade.
Plant and Machinery (P&M): Types

 Heavy Machinery – Bulldozers, cranes, ditchers, excavators, graders,

loaders, rippers, rollers, rooters, scrappers, shovels, tractors, vibrator
wagons and so on.
 Motor Vehicles – All types of motorized vehicles such as car, lorry,
motorcycles, aeroplanes, ships and so forth.
 Plant and Machinery – General plant and machinery not included
under heavy machinery such as air conditioners, compressors, lifts,
laboratory and medical equipment, ovens and so forth.
 Others – Office equipment, furniture and fittings.
Plant and Machinery (P&M) Allowances
 Conditions:
➢ Must be carrying on a business;
➢ Capital expenditure must have been incurred;
➢ Used for the purposes of the claimant’s business;
➢ Owner of the asset at the end of the basis period.
QUALIFYING PLANT EXPENDITURE (QPE)
 Cost of P&M.
 Installation of P&M.
 Alteration of an existing structure for installing P&M.
 Reconstruction of that P&M.
 P&M used for research.
 QPE - Motor Vehicles
 The QPE for private use of motor vehicles is restricted to RM100,000
with the following conditions:

➢ Total cost of the motor vehicle does not exceed RM150,000; and

➢ The car has not been used in prior to purchase;

 Otherwise restricted to RM50,000

 QE for motor vehicles licensed for commercial use like lorries, trucks,
buses, minibuses, vans, station wagons, taxi cabs or hire cars is not
restricted to any amount.
Exercise Q
Amigo Sdn Bhd commenced leased rental for a passenger vehicle that was to be used
by the company’s managing director. The following details relate to the year of
assessment 2024 based on the financial year ended 31 December 2024:

RM
On the road price 168,000
Total lease rentals paid during the year 60,000

What is the qualifying expenditure that can be claimed for capital allowances purposes
in respect of the car for Amazon Sdn Bhd for the year of assessment 2024?
A. RM60,000
B. RM165,000
C. RM50,000
D. RM100,000
Exercise Q
Setia Sdn Bhd commenced leased rental for a passenger vehicle that was to be used
by the company’s IT director. The following details relate to the year of assessment 2024
based on the financial year ended 31 October 2024:
RM
On the road price 122,000
Total lease rentals paid during the year 70,000

What is the qualifying expenditure that can be claimed for capital allowances purposes
in respect of the car for Setia Sdn Bhd for the year of assessment 2024?
A. RM60,000
B. RM165,000
C. RM50,000
D. RM100,000
CAPITAL ALLOWANCE (CA)

 Specific provision given by the IRB to take into account the

reduction of value of an asset.
 CA are calculated on a straight-line basis at a prescribed rate.
 CA is only allowed to be deducted from business income and the
set off of CA is restricted to specific business source.
 Claimant of initial and annual allowances must be owner of the
asset.
 Any unabsorbed CA can be carried forward to future years against
the adjusted income from the same business source.
Types of Capital Allowances

Initial allowances
Given in the first basis year only for the year of
assessment in which the QE was incurred
Rate: 20%
Asset bought and disposed in the same basis
year still entitled for initial allowance, subject to
commercial justification
No apportionment for initial allowance
Types of Capital Allowances

Annual allowance
Every year the assets is used at the end basis period
Commence in the year when QE incurred and the
subsequent years until it is fully written off/ sold,
whichever comes first.
Must be owned by taxpayer (legal or beneficial
owner) at the end of the basis period
Types of Capital Allowances

 The rate provided by IRB:

 Heavy machinery & Motor vehicle [AA = 20%]
 General plant and machinery [AA = 14%]
 Computer Equipment [AA = 40%]
 Furniture and fittings, Office equipment [AA = 10%]
Other Allowances

Accelerated Allowances
 Public transport company using natural gas
 Information and communication technology equipment initial
20%, annual 80%
 Security control and monitor equipment
 Recycling waste – company (IA 40%, AA 20%)
 Transporting industry
 Plant and machinery acquired by SMI (IA 20%, AA 80%)
Other Allowances

Notional allowance
 Given in the basis year when asset were not used in
the business
 Applicable to assets held for sale
 Will not be included in calculating balancing charge
or balancing allowance
 Temporary disuse: IRB allow for capital allowance
provided it is maintained at all times and ready to be
used at any time
Types of Capital Allowances

Small assets can claim 100% capital allowance in the year of

acquisition, provided:

1. The value of each asset not exceed RM1,000

2. Total capital allowance claim on small value assets not
exceeding RM10,000 (not applicable to SMI we YA 2009)
3. Taxpayer is the owner of the asset
4. The asset is in use in the business
Example- Computation of IA & AA

Intan Sdn. Bhd (accounting year ended 30 June), bought a Motor

Van on 11 February 2024 for RM75,000. Compute the capital
allowances for the assets for the year of assessment 2024. (Rates
for the AA is at 20%).
A. RM75,000
B. RM15,000
C. RM30,000
D. RM45,000
Example- Computation of IA & AA

Permata Sdn. Bhd (accounting year ended 30 September),

bought Office Equipment on 22 April 2024 for RM22,000.
Compute the capital allowances for the assets for the year of
assessment 2024 (Rates for the AA is at 10%).

A. RM22,000
B. RM4,400
C. RM8,800
D. RM6,600
Exercise - Computation of IA & AA

Permata Sdn. Bhd (accounting year ended 30 September),

bought Office Equipment on 22 April 2024 for RM22,000.
Compute the capital allowances for the assets for the year of
assessment 2024 (Rates for the AA is at 10%).
A. RM22,000
B. RM4,400
C. RM8,800
D. RM6,600
Residual Expenditure (RE)

Residual expenditure is the written down

value of a qualifying expenditure
RE is arrived after deducting initial
allowance, annual allowance and notional
allowance (if any) from QE.
Disposal of Asset

 Disposal of an asset may arrived either:

 When the plant or machine is disposed (sold,
discarded or destroyed)
 the business permanently ceases but the plant and
machinery continue to belong to the business
 Plant or machinery permanently ceases to be used in
the business
Disposal of Asset

 Disposal of an asset will result of balancing

allowance / balancing charge
 It is not a tax of gain on disposal of qualifying asset
but merely a withdrawal of capital allowance
previously allowed.
Balancing charge / allowance

 Balancing charge occurs when the sale price exceeds

the residual expenditure
 Balancing allowance occurs when the residual
expenditure exceeds the sale price
 Balancing charge is restricted to the actual allowances
given (i.e. Initial + accumulated annual allowance).
Notional allowances are not treated as allowances
given
EXAMPLE- CAPITAL ALLOWANCES COMPUTATION

Dania Sdn. Bhd (accounting year ended 31 December), bought a

van on 1 January 2022 for RM60,000. The van was used in
business but was found unsuitable and disposed of on 1
October 2024 for RM10,000.

Compute the IA, AA and BC or BA.

*Rates for the IA and AA are at 20%.

 EXAMPLE- SOLUTION
RM RM
Qualifying Plant Expenditure (QPE) 60,000
YA 2022 (y/e 31.12.2022)
Initial Allowance (20%) 12,000
Annual Allowance (20%) 12,000 (24,000)
Residual Expenditure (RE) 36,000
YA 2023 (y/e 31.12.2023)
Annual Allowance (20%) (12,000)
Residual Expenditure (RE) 24,000
YA 2024 Sales Proceeds (SP) (10,000)
Balancing Allowance (BA) 14,000
Exercise: Computation of Balancing Adjustments

Shusha Sdn. Bhd (accounting year ended 31 October), bought a

motor van on 11 June 2022 for RM110,000. The van was used in
business but was found unsuitable and disposed of on 17 April
2024 for RM51,000. Compute the balancing adjustment as a
result of the disposal (Rates for the IA and AA are at 20%).

A. Balancing Allowance of RM4,000

B. Balancing Allowance of RM15,000
C. Balancing Charge of RM7,000
D. Balancing Charge of RM44,000
EXAMPLE: Balancing charge/allowance

ABC Enterprise owns one minivan, licensed as

commercial vehicle. The minivan was purchased at
RM70,000 on 1 March 2022. In the YA 2023, notional
allowance of 14% was computed because the van
was not used for the business. On May 2024, the van
was sold for RM62,000. Calculate the balancing
charge/allowances with respect to the disposal.
 Example: Solution
RM
QE 70,000
YA 2018: IA (20%) + AA (20%) 28,000
RE 42,000
YA 2019: Notional allowance 9,800
(14%)
RE 32,200
YA 2020 : Sales proceeds 62,000
Balancing charge 29,800
However, balancing charge is restricted to RM28,000 (actual
capital allowance claim. Notional allowance is excluded in
the computation of balancing charge)
Unabsorbed capital allowance
 If capital allowance is not fully utilised in a basis year
(i.e. Adjusted business income is less than capital
allowance), the unabsorbed capital allowance is
allowed to be carried on to the following YA
 Unabsorbed capital allowance is only allowed to
be deducted from the same business source
 If the business ceases permanently, all unabsorbed
capital allowance will be lost forever.
Asset owned less than 2 years
 Capital allowances given before will be disallowed,
unless by reason of death or commercial justification
can be provided for disposing the asset in such short
period of time
 Example of commercial justification: fire damage,
technology obsolescence, accident.
 In case allowance has been made, a balancing charge
in an amount equal to any such allowance shall be
made in the basis period in which the asset was
disposed.
Example

PPT Sdn. Bhd. purchased a machine on 1

Jan 2023 for RM5,000. The machine was later
sold on 1 April 2024 for RM3,000. Calculate
the relevant allowances available for PPT
Sdn Bhd.
Example: Solution
QE 5,000
YA 2023: IA (20%) 1,000
AA (14%) 700
RE 3,300
YA 2024: Sales proceeds 3,000
Balancing allowance 300
If no commercial justification is provided, no allowances
will be given for PPT Sdn Bhd for the YA 2024. Instead,
all allowances previously given will be ‘clawback’ in
the form of balancing charge RM1,700.
 Dual purpose & used asset
 Asset used for dual purpose – the amount of
allowances to be determined by IRB based on
circumstances of the case
 Used plant or machinery, the qualifying expenditure
is based on the net book value or market value on
the day the asset was bought into use for the
purpose of the business, whichever is lower
Hire Purchase Asset
 QE is based on the amount of cash incurred on the
asset (deposits + capital portion of instalment).

Example:
AGT Sdn Bhd purchased a new car under hire-
purchase at the cost of RM140,000. The company
paid a down payment of RM14,000 on 5 May 2023.
The company paid the first installment on 30 May
2023. The capital portion of each installment is
RM4,800. Calculate capital allowance for YA 2024.
Hire Purchase Asset
Answer:
RM
Down payment 14,000
Instalment (capital) [8 months x 4800] 38,400
QE: 2023 52,400
YA 2019 (IA 20% + AA20%) (20,960)
RE / TWDV 31,440
Instalment (capital) [12 months x 4800] = 47,600
57,600 but QE is restricted to RM100,000.
Hence only RM47,600 (RM100,000 –
RM52,400) can be claimed in 2020 onwards
YA2024 [IA 20% x RM47,600 + AA 20% x (29,520)
RM100,000]
RE / TWDV 49,520
Thank you...
A Always
S Seek
K Knowledge
Topic 9
Partnership
 Definition

“An association of any kind between parties who

have agreed to combine any of their rights, powers,
property, labour and skill for the purpose of carrying
on a business and sharing the profits.
[sec 2 of ITA 1967]
 Definition

• A partnership is not a person within the meaning of

sec 2 of the ITA 1967, therefore no assessment can
be raised on partnership.
• Each partner will be assessed on individual basis
based on his/her share of partnership income
• Formed by at least 2 persons but not exceeding 20
persons
 Types of Partners

• Full partner
– Actively engaged in partnership business
– Main partner responsible to submit the
partnership tax return form to IRB
• Salaried partner
– Obtained salary from partnership with/without a
share of profits
 Types of Partners

• Silent partner/Limited partner

– partner that subscribes to a fixed amount of
capital for the partnership and is not actively
engaged in the management of the business
• Corporate partner
– A company that is a partner of a partnership
business
 Assessment

• Similar to business income

• Adjust profit figure for
– Partners’ salaries
– Interest on partners’ capital
– Other personal expenses charged in the
partnership accounts
• Basis period: calendar year
 Assessment
Basic steps in establishing partner’s share of
partnership income:

a. Calculate the partnership’s adjusted and

divisible income.

b. Calculate the partnership’s entitlement to

capital allowances.

c. Allocate the divisible income, partner’s salary

and interest on capital among the partners.
 Provisional Adjusted Income

RM RM
Net profit per partnership's accounts XX

Add:
Non-deductible expenses XX
Partner's private or domestic expenses XX
Partner's salaries XX
Interest on capital XX XX
PROVISIONAL ADJUSTED INCOME XX
Deductible and Non-deductible Expenses

▪ Partner's private or domestic expenses: not deductible expenses as it

is a personal expenses.
▪ Salary expenses:
▪ Salary of partners is not deductible expenses as it is merely a profit
distribution.
▪ Salary of employees is deductible expenses as it is a normal revenue
expenses for a business.
▪ Interest expenses:
▪ Interest paid to partners on their capital contribution is not
deductible expenses as it is merely a profit distribution – a fixed
percentage on partners capital account.
▪ The interest paid service the business loan is deductible expenses as
it is a normal revenue expenses for a business.
 Divisible Income
• Divisible income for the basis period is
the provisional adjusted income less:
– Partners’ wage or salaries
– Interest payable to a partner
– Private expenses of the partners charged to the
partnership account
 Divisible Income

Provisional Adjusted income XX

Less:
Partners' private or domestic expenses XX
Partners' salaries XX
Interest on capital XX XX
DIVISIBLE INCOME XX
Adjusted Income & Statutory Income
• Adjusted income for individual partner is
– The share of divisible income/loss, and
– Remuneration, interest and private expenses
from the partnership
• Statutory income is adjusted income plus
proportion of balancing charge minus
proportion of capital allowance.
• Proportion is based on profit sharing ratio
 Evaluation of Partner’s Income
Partner Mr A Mr B Mr C Total
Profit sharing ratio 1∕5 2∕5 2∕5

Divisible income XX XX XX XX
Salary XX XX XX XX
Interest on capital XX XX XX XX
Private expenses XX XX XX XX
ADJUSTED INCOME XX XX XX XX
Less: Capital allowances (XX) (XX) (XX) (XX)
STATUTORY INCOME XX XX XX XX
 Example
The following accounts are prepared for Nona and Noni
Enterprise, a partnership for the basis year 2024
RM RM RM
Sales 300,000
Less: COGS 180,000
Gross profit 120,000
Less: Administrative expenses 21,000
Depreciation 15,000
Partner’s salaries: Nona 24,000
Partners’ Interest: Nona 2,000
Noni 6,000 8,000
Partners’ private expenses: Nona 2,000 70,000
Net profit 50,000
 Example

Required:
Calculate the partners’ divisible income and
partners’ statutory income. Assume Nona &
Noni share the profit/loss equally and capital
allowance for the YA 2024 is RM12,000.
 Example
A. Provisional adjusted income
Net profit 50,000
Add: Depreciation 15,000
Partner’s salaries 24,000
Partners’ interest 8,000
Partner’s private expenses 2,000 49,000
Provisional Adjusted income 99,000
 Example
A. Divisible income
Provisional adjusted income 99,000

Less:

Partner’s salaries 24,000

Partners’ interest 8,000

Partner’s private expenses 2,000 34,000

Divisible income 65,000

Nona and Noni divisible income are RM32,500 each

 Example
A. Partners’ statutory income
Nona Noni
Salaries 24,000 -
Interest on capital 2,000 6,000
Private expenses 2,000 -
Share of divisible income 32,500 32,500
Adjusted income 60,500 38,500
Less: capital allowance 6,000 6,000
Statutory income 54,500 32,500
 Changes in Partnership
• The retirement; death of a partner; dissolution of
the partnership; or admission of a new partner.
• If at least one person who is a partner in the old
partnership and continues to be a partner in the
new partnership, the partnership business is
treated as continuing business although the
changes occur during the basis period.
• The continuing partner is deemed to have one
source of business income
• There is no requirement to prepare a separate set
of accounts for the year end where the change
occurs.
 Changes in Partnership

• If profit sharing ratio changed, apportionment need

to be carried out on the time basis.
• The sharing of divisible income is referred to the
agreement subsists at the time.
• Capital allowance are only given to partners
existing at the end of the year
 Example
Chen and Chow commenced partnership business on
1.1.2022 and accounts are closed on 31 Dec annually. The
partnership agreement is as follows:

• Interest on capital: 10% per annum for each partner

• Capital contribution: Chen RM80,000; Chow RM120,000
• Salary (per month): Chen RM2,500; Chow RM2,500
• Share of profit/loss: Chen 2/5 ; Chow 3/5

On 30.6.2024, Chow left the partnership & withdrew his

accumulated capital and profits up to that date.
 Example
On 1.7.2024, Wong joined the partnership & new
partnership agreement are as follows:
• Interest on capital: 10% per annum for each
partner
• Capital contribution: Chen 100,000 ; Wong
RM100,000
• Salary per month: Chen RM2,500; Wong RM2,500
• Share of profit/loss: Chen ½ ; Wong ½
 Example
Profit and loss account for the year 2024 are as follows
RM
Sales 6,000,000
Less: COGS 4,500,000
Gross profit 1,500,000
Less: Expenses 800,000
Net income 700,000

Included in the expenses are depreciation of RM15,000; salaries to partners

and interest on capital to partners.
Capital allowances for the YA 2024 is RM13,500

Required:
Calculate the statutory income for each partner for the YA 2024.
 Example
RM
Net profit 700,000
Add: Depreciation 15,000
Salaries to partners (2,500 x 2 x 12 months) 60,000
Interest on capital [(8,000+12,000) x 6/12] + [(10,000+10,000) 20,000
x 6/12
Provisional adjusted income 795,000
Less: Partners’ salaries 60,000
Partners’ interest on capital 20,000
Divisible income 715,000
Divisible income for 6 months (accrued evenly) 357,500
 Example
Chen Chow Wong

Salary 30,000 15,000 15,000

Interest on capital 9,000 6,000 5,000

Share of divisible income 1/1 – 30/6 143,000 214,500 -

Share of divisible income 1/7 – 31/12 178,750 - 178,750

Adjusted income 360,750 235,500 198,750

Less: Capital allowance 6,750 - 6,750

Statutory income 354,000 235,500 192,000

 Other Issues
• Approved donation
– deducted from aggregate income of each partners in
their tax return based on their profit sharing ratio on
the last day of the basis period
• Asset purchased by partner & solely used by him
for partnership business
– entitled for capital allowance
• Non business income of a partnership
– Income will be shared by individual partners according
to their profit sharing ratio.
Thank you..

Three things make us miserable:

Too sad about the past;
Too worried about the future; and
Not grateful for the present.
CORPORATE TAXATION
Topic 10
 COMMENCEMENT DATE

▪ Why necessary?
1. Determine the basis period of a business
2. Determine pre-commencement expenditure which
would not be deductible for tax purposes
3. Be able to set off capital allowances against adjusted
income from that business source
 COMMENCEMENT DATE
▪ Guidelines in ascertaining the commencement date:
➢ Acquisition of an existing business – date on which the business
operations are acquired.
➢ Manufacturing – date on which raw materials are received and the
trader is in a position to manufacture.
➢ Plantation – date on which the seeds are sown, or the seedlings
planted.
➢ Hotel – date on which the hotel is opened to the public.
➢ Retailing/ Trading – date on which the shop or supermarket is
opened to the public.
➢ Service provider – commence its business when it opens its door to
the public, ready to render their services.
 COMMENCEMENT DATE (ISSUES)
▪ The difficulty in determining the date of commencement arises with
manufacturing businesses.
▪ Manufacturing businesses acquire raw materials, process them into
completed products and then sell these to either trading businesses or
directly to customers.
▪ The trading stock consists of raw materials, work in progress and finished
products.
▪ The test to ascertain the commencement date was laid down in CIT v
Saurashtra Cement &Chemical Industries Ltd. (91 ITR 170).
▪ If there is >1 manufacturing process, then manufacturing commences at
the commencement of the first stage of the manufacturing process.
▪ The acquisition of raw materials, employment of manufacturing staff and
acquisition of plant and machinery are activities preparatory to the
commencement of business.
 BASIS PERIOD FOR A BUSINESS
▪ A company is chargeable to income tax in respect of all its sources
of income for a year of assessment (YA).
▪ A company can close its accounts to 31 December or to any other
year end.
▪ The accounting period for the year shall constitute the basis period
for that YA.
▪ Example: ABC Sdn Bhd was incorporated with a share capital of
RM5 million. It commenced trading on 1 February 2022 and closed
its first set of accounts on 31 January 2023. What is ABC Sdn Bhd’s
first YA and first basis period?
✓ The first YA is 2023.
✓ The first basis period for the YA2022 is 1 February 2022 to 31
January 2023.
 TAX RATES
Resident company:

•Company with paid up capital not more than RM2.5 million

and gross business income of not more than RM50 million
•On first RM150,000 15%
•RM150,001 to RM600,000 17%
•RM600,001 and Subsequent
24%
Balance
•Company other than the above category 24%

Non-residents Company 24%

 (Q1)-TAX RATES
▪ A non-resident company with paid-up share capital equivalent to
RM1 million has a branch in Malaysia. The branch has chargeable
income of RM550,000 for the financial year ended 31 July 2023.
▪ What amount of income tax is payable by the company in Malaysia
for the year of assessment 2023?

A. RM132,000
B. RM99,000
C. RM102,000
D. RM107,000 The business of manufacturing commences when
thcycle that is 6.6.2022
 SELF ASSESSMENT SYSTEM (SAS)

▪ SAS has taken place for companies since 2001

▪ The burden of computing the taxpayer’s liability is shifted from the
IRB to taxpayers.
▪ The tax returns submitted will no longer be subject to a detailed
review by the IRB.
▪ The main objective of the SAS is to inculcate a practice of voluntary
compliance by taxpayers & reduce the workload of IRB.
▪ The implementation of SAS has also resulted in changes to the tax
compliance cycle & penalty provisions.
 ESTIMATE OF TAX PAYABLE (1)
▪ Under SAS, company is required to determine & submit in a
prescribed form (Form CP204) an estimate of its tax payable for a
YA, 30 days before the beginning of the basis period, even if it
expects its estimate of tax payable to be Nil.
▪ The estimate of tax payable for that year cannot be < 85% of the
estimate of tax payable for the immediate preceding YA.
▪ When estimate of tax payable has been submitted to IRB, the
company is required to remit this amount to IRB in equal monthly
installments.
▪ Eg: if a company has a 12-month basis period, the estimate of tax
payable must be paid over a 12-month installment scheme.
 ESTIMATE OF TAX PAYABLE (2)
▪ Each monthly installment is due & payable to the IRB by the 10th
day of the following month.
▪ Eg: the January installment will be due for payment by the 10th of
February & so forth.
▪ Company can revise its estimate of tax payable by submitting a
Form CP204A in the 6th &/or 9th month of its basis period.
▪ Where the revised estimate exceeds the amount of installments
paid to date, the difference shall be payable in the remaining
months of the installment scheme.
▪ Conversely, when installments paid to date exceed the revised
estimate, the company may discontinue its original installment
scheme.
 FILING OF TAX RETURNS
▪ A fundamental difference between the OAS & SAS:
✓ Discontinuance of a detailed review of returns submitted.
✓ Tax returns submitted by the taxpayer would be deemed as
notices of assessment.
▪ Companies must file tax returns within 7 months from the end of the
accounting period.
▪ Eg. accounting period ending on 31 January must file tax return by
31 August.
▪ Any balance of tax payable after taking into account payments
made via the installment scheme would have to be remitted to the
IRB within 7 months from the end of the accounting period.
 TAX RETURNS & AUDITS PENALTY PROVISIONS
1. Penalties for omission/non-disclosure
▪ The IRB may impose a penalty equal to treble the amount of tax which
is payable for that year.
▪ A collection penalty of 10% if there is a balance of tax payable & if the
tax is still not paid after 60 days, a further 5% penalty will be imposed.
2. Not providing reasonable facilities & assistance
▪ Failure by a taxpayer to provide reasonable facilities & assistance to
the IRB when conducting an audit is an offence & upon conviction,
liable to a fine of between RM1,000-RM10,000 / face imprisonment for a
term not exceeding 1 year / both.
3. Failure to keep sufficient records
▪ Upon conviction will be liable to a fine of between RM200-RM2,000 /
face imprisonment for a term not exceeding 6 months / both.
 APPEAL AGAINST AN ASSESSMENT
1. If a taxpayer is dissatisfied with an assessment, he should file an
appeal by submitting a letter / Form Q within 30 days of
submission date of the tax return.
2. Specific details and the grounds of appeal should be stated in the
appeal letter.
3. In the event the IRB is unable to reach an agreement with the
taxpayer, the case will be forwarded to the Special
Commissioners.
4. Wef YA2009, taxpayers with no tax liability can file an appeal by
using the Notification of Non-Chargeability to be filed through the
DGIR using Form Q.
 DERIVATION OF BUSINESS INCOME

1. Gross income from a business that is not attributable to operations

of the business carried on outside Malaysia is deemed to be
derived from Malaysia.
2. For the business income to be taxed in Malaysia:
✓ Contract concluded in Malaysia
✓ Stocks maintained in Malaysia from which orders are fulfilled
✓ Ownership & risk passes in Malaysia
✓ Sales proceeds received in Malaysia
✓ Services rendered in Malaysia
 CAPITAL VS INCOME

• Need to distinguish between ‘income’ and ‘capital gains’:

➢ Income is subject to tax
➢ Gains of a capital nature are not taxable in Malaysia
• The distinction is very important when doing a tax computation:
a. Payments for the sale of the fixed assets of a business are capital receipts.
b. Payments received for the destruction of the recipients’ profit-making apparatus
are receipt of a capital nature.
c. Payments in lieu of trading receipts are of a revenue character.
d. Payments made in return for imposition of substantial restrictions on the activities
of a trader are of a capital nature.
e. Payments of a recurrent nature are more likely to be treated as revenue
receipts.
 CAPITAL VS INCOME - EXAMPLES
Capital Income
1. Sale of capital assets eg, plant & 1. Trading income.
machinery, furniture, office 2. Sale of goods
equipment etc. 3. Provision of services, eg engineers,
2. Profit from the sale of long- contractors, doctors, accountants
term investments. etc.
3. 4D gains, windfall gains. 4. Short term investments held for re-
4. Gains from gambling, eg sale.
winnings from a casino. 5. Income of housing developers from
5. Gifts. selling of completed houses.
 WHAT IS GROSS INCOME?
1. Sale of stock in trade;
2. Provision of services rendered;
3. A debt arising from the use of any property;
4. Market value of stock in trade withdrawn;
5. Dividend income of a share dealing business;
6. Interest income of an investment dealing business;
7. The market value of the goods exported;
8. Recovery of a bad debt;
9. Release (or waiver) of a debt;
10. Insurance, indemnity, recoupment, recovery, reimbursement;
11. Compensation for loss of income.
 DEDUCTIBLE AND NON-DEDUCTIBLE EXPENSES

a. Disallowed Expenses - Capital

b. Disallowed Expenses – Asset
c. Section 39 prohibited expenses
d. Expenses that are not incurred
e. Non-trade debt
f. Capital Loss
g. Investment Expenses
 A. DISALLOWED EXPENSES - CAPITAL
1. Cost of printing & distribution of annual reports
2. Stamp duty & secretarial fees for increased share capital
3. Stock listing expenses
4. Pre-commencement business expenses
5. Entrance fees to club
6. Legal & professional fees relating to capital structure of company,
acquisition of loan or assets
7. Lump sum payment for early termination of lease
8. Registration of trademark
9. Foreign exchange loss on acquisition of plant & machinery
10. Fees for designing company logo
11. Compensation to competitor to restrict competition (restrictive
covenant)
 B. DISALLOWED EXPENSES - ASSET
1. Renovation of factory, office premises
2. Improvements for repairs/ Initial Repairs
3. Small value capital items eg. chairs, calculators
4. Installation cost of machines
5. Cost of stand used in advertising
6. Deposits paid for telephone or utilities
7. Replacement of electrical alarm system
 Example. Repairs & Maintenance

Capital Revenue

• Initial repairs • Replacement of part of the asset

• Improvements • Renewal
• Replacement of whole of asset • Maintain asset’s existing condition or
• Upgrading of telephone system commercial viability
• Rewiring of office premises
 C. SECTION 39 PROHIBITED EXPENSES
1. Private & domestic expenses.
2. Expenses not wholly & exclusively incurred e.g. excessive salary
paid to family members.
3. Capital employed or money withdrawn as capital.
4. Contribution to unapproved pension/provident/saving scheme.
5. Leave passage.
6. Penalty on withholding tax
7. Entertainment expenses for supplier (50% deductible).
 D. EXPENSES THAT ARE NOT INCURRED

1. General provision for bad & doubtful debts

2. Provision for gratuity/retirement benefits
3. Provision for warranty cost, stock obsolescence
4. Amortization for renovation of premises, lease amortization
5. Unrealized exchange loss in relation to acquisition of raw
material.
6. Provision for repair & maintenance
 E. NON-TRADE DEBT

1. Loan written off in relation to that of employees’ or suppliers

 F. CAPITAL LOSS

1. In the same vain as capital gain which is not taxable, capital loss
is not tax deductible.
2. Examples are:
i. Loss on the sale of fixed asset.
ii. Loss on disposal of assets.
iii. Loss on disposal of long-term investment.
 G. INVESTMENT EXPENSES

1. Expenses related to investment income is not deductible against

business income & to be set off against individual investment
income.
2. Example: Interest expenses on loan to acquire shares in other
company.
 DOUBLE DEDUCTION EXPENSES
1. Research & development activities approved by the
Minister; or undertaken by a person participating in an
approved industrial adjustment program.

2. Expenses incurred in international trade fairs held in

Malaysia for the promotion of exports approved by the
Ministry of International Trade and Industry

3. Remuneration paid to handicapped employees

4. Export credit insurance premiums insured with a

company approved by the Minister
 DOUBLE DEDUCTION EXPENSES
5. Freight charges incurred on the shipment of manufactured goods from Sabah
and Sarawak to Peninsular Malaysia provided the manufacturers use the ports in
Peninsular Malaysia.

6. Overseas expenses for promotion of tourism incurred by hotel and tour operators
for promotion of tourism registered with the Tourist Development Corporation of
Malaysia

7. Professional fees made to a company resident in Malaysia for advertising or

promoting Malaysian brand name goods on behalf of the company which is the
registered proprietor of the Malaysian brand name.

8. Halal Certification expenses incurred for the purpose of obtaining certification for
recognized systems and standards as well as halal certification from a certification
body
 SPECIFIC BUSINESS DEDUCTIONS

Employer’s
Equipment for Pre-
Bad and Contribution to
Disabled commenceme
Doubtful Debts an Approved
Employees nt Expenses
Scheme

Salary for
Legal Expenses,
Travelling disabled
Fines and Commitment
Expenses/Leave employees
Penalties and Guarantee
Passage (double
Fees
deduction)
 ASCERTAINMENT OF CORPORATE TAX

1. CA 1965 requires a company’s financial accounts to be audited

by approved auditors.
2. Tax computation of company is constructed based on the
audited accounts & additional schedules provided by company.
3. A company is only required to submit the tax return (form C)
within 7 months after closing the company’s year-end.
4. The tax computation & audited accounts are kept by the
company for the inspection of tax audit staff in future years.
 TRANSLATION FROM INCOME STATEMENT TO ADJUSTED INCOME

RM RM
Net profit before tax (NFBT) x
• Gross income of the business would
normally be the turnover that is Add: Expenditure shown in the x
shown in the P&L accounts. accounts but not tax
• Allowable expenses is then deductible
deducted to arrive at Adjusted Income taxable but not x x
Income. shown in the accounts
• In practice, the tax computation x
begins with NPBT as shown in
Income Statement. Less: Income shown in the x
accounts but not taxable
• Appropriate adjustment is made to
arrived at Adjusted Income. Expenditure tax deductible
but not shown in the accounts x
Expenditure qualify for double x (x)
deduction
Adjusted income x 33
 Chargeable Income Framework
34

▪ Gross Income – business income from

all sources
Gross Income ▪ Adjusted income – after deducting all
expenses wholly and exclusively
Adjusted incurred, the result is the Adjusted
Income Income (Loss)
▪ Statutory Income – After deducting
Statutory Capital Allowances from the Adjusted
Income Income, the result is the Statutory
Income.
Aggregate ▪ Aggregate Income – Apply the
Income unrelieved business loss and add other
non business income to the Statutory
Income and the result is the
Total Aggregate Income
Income/ ▪ Total Income – From Aggregate
Chargeable Income, deducts adjusted business
Income loss, donations group relief.
▪ Chargeable Income – Income subject
to Income Tax
 CORPORATE INCOME TAX COMPUTATION

RM RM
Net profit 10
Add: Income taxable but not shown in the accounts 2
Less: Income shown in the accounts but not taxable (1)
Add: Non-deductible Expenditure 1
Less: Expenditure deductible not shown in the accounts (2)
Less: Expenditure qualify for double deduction (1) (2)
Adjusted income 9
Add: Balancing Charge 1
Less: Capital & Balancing Allowances (1)
Statutory Income 8
Unabsorbed business loss (1)
Other Income - Rental Income 2 1
Aggregate Income 9
Approved Donations (1)
Chargeable Income 8
Tax Liability @ 24% 2
 APPROVED DONATIONS
• Cash donation to government, state government, local authority or approved
institution or organization (Maximum 10% of Aggregate Income).
• Important to ensure that your donation falls within the list of categories recognised
by LHDN.
• Donation of artifacts, manuscript or painting to Government or State
Government, the value determined by the Department of Museums and
Antiquities or the National Archives.
• Cash donation (restricted to RM 20,000) for the provision of library facilities to
public/school libraries, university/colleges.
• Cash or in kind (value determined by the relevant local authority) for the provision
of facilities in public places for disable persons.
• Cash or medical equipment (value certified by Ministry of Health) up to RM 20,000
for the approved health care facility.
• Donation of painting (value to be determined by the National Art Gallery or State
Art Gallery) to the National or State Art Gallery.
Thank you…

Faith is taking the first step even

when you don’t see the whole staircase.
Martin Luther King Jr
Sales and Service Tax (SST)

TOPIC 11
Sales Tax

 Sales tax is a single-stage ad valorem tax imposed on all goods

manufactured in or imported into Malaysia unless specifically exempt
by the Minister.
 Sales tax was first introduced in Malaysia with effect from 29 February
1972.
 The legislation governing the administration and operation of sales tax
was the Sales Tax Act 1972 which was repealed with the coming into
operation of the GSTA 2014 on 1 April 2015.
 The reintroduction of sales tax is mainly governed by the Sales Tax Act
2018 and Sales Tax (Amendment) Act 2020.
Imposition and Scope of Sales Tax

 Sales tax shall be charged and levied on all taxable goods manufactured in
Malaysia by a registered manufacturer and sold, used, or disposed of by
him; or and on any importation of goods into Malaysia by any person [S.
8].
 It is a single-stage ad valorem tax imposed on all goods manufactured in
or imported into Malaysia unless specifically exempt by the Minister.
 Sales tax is imposed at the manufacturer’s level.
 Sales tax is not applicable in Designated Areas (Labuan, Langkawi, Tioman
and Pangkor) and Special Areas (Free Zones, License Warehouse, License
Manufacturing Warehouse, Petroleum Supply Based Licensed and the Joint
Development Area)
Taxable Person and Taxable Goods

 A “taxable person” means a registered manufacturer or a

manufacturer who is liable to be registered under S. 12 (Sales Tax Act
2018).
 “Goods” means all kinds of movable property.
 “Taxable goods” means goods of a class or kind not exempted from
sales tax.
Determination of Sale Value of Taxable Goods

 Under the Sales Tax (Determination of Sales Value of Taxable Goods)

Regulations 2018 (STV), the sale value of the goods shall be determined
on the basis of the “transaction value” of the goods.
 The transaction value is the price for which the goods are actually sold
by the taxable person to the purchaser.
 Where taxable goods are imported into Malaysia, the sale value of the
taxable goods shall be the sum of the following amounts:
a. the value of such taxable goods for the purpose of customs duty as
determined in accordance with the Customs Act 1967
b. the amount of customs duty, if any, paid or to be paid on such
taxable goods, and
c. the amount of excise duty, if any, paid or to be paid on such taxable
goods
Rate of Sales Tax

 The rate of Sales Tax (S. 10) depends on the type of goods and
materials.
 As a general rule, goods and materials are subject to sales tax at the
rate of 10%.
 Some goods such as fruits and certain foodstuffs are taxed at a reduced
rate of 5% (First Schedule lists goods that shall be subject to sales tax
at 5%), and some are taxed at a specified rate (Second Schedule lists
goods which shall be subject to sales tax at the rate specified).
 Some goods and materials are specifically exempt such as building
materials, motorcycles, and certain specific food products [Sales Tax
(Goods Exempted from Tax) Order 2018].
Sales Tax Due

The sales tax chargeable shall be due at the time the

taxable goods are:
a. sold, or
b. disposed of otherwise than by sale, or
c. first used otherwise than as materials in the
manufacture of taxable goods by the taxable person (S.
11)
Registration
 Every person carrying on business as a manufacturer of taxable goods (which
means goods of a class or kind not for the time being exempted from sales tax,
i.e. goods chargeable to sales tax) in Malaysia has an obligation to register as a
licensed manufacturer for sales tax purposes.
 Following the issue of the license, the manufacturer will have to comply with the
various provisions of the Act including the determination of sales tax payable,
filing of sales tax returns, payment of sales tax, and keeping of records.
 Any manufacturer of taxable goods is liable to be registered at the following
time, whichever is the earlier:
(i) at the end of any month, where the total sale value of all his taxable goods in
that month and the 11 months immediately preceding that month has exceeded
RM500,000,
or
(ii) at the end of any month, where there are reasonable grounds for believing
that the total sale value of all his taxable goods in that month and the 11
months immediately succeeding that month will exceed RM500,000.
Furnishing of Returns and Payment of Sales
Tax Due and Payable
 Any taxable person who furnishes an incorrect return or fails to pay to the DG
the amount of sales tax due and payable commits an offence and shall, on
conviction, be liable to a fine not exceeding RM50,000 or to imprisonment for a
term not exceeding 3 years or to both.
 Where any sales tax due and payable is not paid wholly or partly by any taxable
person after the last day on which it is due and payable and no prosecution is
instituted, the taxable person shall pay:
1. for the first 30 days period, a penalty of 10% of the amount of sales tax
which remains unpaid
2. for the second 30 days period, an additional penalty of 15% of the
amount of sales tax that remains unpaid,
3. for the third 30 days period, an additional penalty of 15% of the amount
of sales tax which remains unpaid.
 EXAMPLE
Auto Dealer Sdn Bhd purchased automotive spare parts (being taxable goods)
from an independent overseas supplier for a price of RM100,000. The goods were
imported into Malaysia and the charges for freight and insurance amounted to
RM2,000 and RM1,800, respectively. The goods are subject to import duty at the
rate of 25% and sales tax at the rate of 10%. Compute the sales tax payable by
Auto Dealer Sdn Bhd.

Solution:
Value of goods for import duty purposes (RM):
 Purchase price 100,000
 Freight 2,000
 Insurance 1,800
 CIF Value 103,800
 Import duty @ 25% 25,950
 Sale value for sales tax purposes 129,750
 Sales tax payable @10% 12,975
Penalties
 Any person who commits the above offences shall on conviction, be liable to the
following penalties:
i. for the first offence, to a fine of not less than 10 times and not more
than 20 times the amount of sales tax or to imprisonment for a term not
exceeding 5 years or to both
ii. for a second or subsequent offence, to a fine of not less than 20 times
and not more than 40 times the amount of sales tax or to imprisonment
for a term not exceeding 7 years or to both
iii. where the amount of sales tax cannot be ascertained, the person shall be
liable to a fine of not less than RM50,000 and not more than RM500,000
or to imprisonment for a term not exceeding 7 years or to both, and
iv. a person who assists in, or advises with respect to, the preparation of any
return where the return results in an understatement of the liability for
sales tax of another person, unless he satisfies the court that the
assistance or advice was given with reasonable care, commits an offence
and shall, on conviction, be liable to a fine of not less than RM2,000 and
not more than RM20,000 or to imprisonment for a term not exceeding 3
years or to both.
Penalties

 A person who gives any incorrect information in relation to any matter

affecting his own liability to sales tax or the liability of any other person
to sales tax commits an offence and shall, on conviction, be liable to
imprisonment for a term not exceeding 3 years or to a fine not
exceeding RM50,000 or to both.
Service Tax

 Service tax was first introduced in Malaysia with effect from 1 March
1975.
 The legislation governing the administration and operation of service
tax was the Service Tax Act 1975 which was repealed with the coming
into operation of the GSTA 2014 on 1 April 2015.
 The service tax was reintroduced on 1 September 2018 after the
abolishment of GST for the reimposition and collection of service
taxes.
 The reintroduction of Sales Tax is mainly governed by the Service Tax
Act 2018 and Service Tax (Amendment) Act 2020.
Imposition and Scope of Service Tax
 Service tax is chargeable on and payable by any:
a. taxable person who carries on a business of providing taxable
services, where the services are in respect of goods or land
situated within Malaysia (S. 7), or
b. imported services (with effect from 1 January 2019), or
c. foreign service provider, or
d. foreign registered person (S. 56C)

 The Service Tax Act 2018 applies throughout Malaysia excluding:

a. Designated Areas (DA) means Labuan, Langkawi, Tioman and
Pangkor (S. 2, Service Tax Act 2018).
b. Special Areas (SA) means any free zone, licenced warehouse and
licenced manufacturing warehouse, the Joint Development Area,
and a petroleum supply base licensed (S. 2, Service Tax Act 2018).
Taxable Persons and Taxable Services

 Service tax is chargeable on and payable by any taxable

person who carries on a business of providing taxable
services. Service Tax Act 2018 defines a “taxable person”
to mean any person who is prescribed to be a taxable
person and “taxable service” means any service which is
prescribed as a taxable service.
 The threshold is determined based on the aggregate value
(where applicable) of taxable services.
“Taxable Persons” and “Threshold”

 Sch. 1 of the Service Tax Regulations (2018) specified and grouped the
“Taxable Persons” and the threshold for registration.

Group Taxable Persons Threshold

A Accommodation RM500,000

B Food and beverage RM1,500,000

Rate of Service Tax

 Service tax is charged and levied at a fixed rate of 6% (S. 10) on the
taxable services by reference to the value of the taxable services
provided as determined under S. 9.
 The rate of service tax is ad valorem for all taxable services except
for the provision of credit card or charge card services. Service tax
for the provision of credit card or charge card services is RM25 per
year on each principal card and supplementary card.
 Service tax is collected based on the date the card is issued or on the
date of renewal and every 12-month period or part thereof after the
issuance or renewal of the card.
 Liability to be Registered
▪ A person who provides any taxable service, and the total value of taxable services of the
person has reached the prescribed threshold, is liable to be registered for service tax
purposes.
▪ The person is liable to be registered at the following time, whichever is the earlier:
a. at the end of any month, where the total value of all his taxable services in that
month and the 11 months immediately preceding that month has exceeded the total
value of taxable service prescribed, or
b. at the end of any month, where there are reasonable grounds for believing that the
total value of all his taxable services in that month and the 11 months immediately
succeeding that month will exceed the total value of taxable services prescribed.
▪ A person who is liable to be registered needs to apply to the DG for registration as a
registered person in the prescribed form not later than the last day of the month following
the month in which he is liable to be registered.
Cessation of Liability to be Registered

 A registered person who ceases to carry on the business of

providing taxable services; or who ceases to be liable to be
registered must notify the DG in writing of that fact and the date
of cessation within 30 days from the date of cessation.
 A registered person shall cease to be liable to be registered if:
a. the person ceases to carry on the business of providing
services, or
b. the total value of all his taxable services in the period of 12
months does not exceed RM500,000.
 Invoices

▪ Invoices are required to be issued for every taxable service

provided or any taxable goods provided or sold (S. 10) in the
national language or English language.
▪ The amount of service tax payable is to be separately shown in the
invoice and copy of every invoice issued must be retained and
produced to a Customs officer when required for inspection.
 Invoices
▪ Under the service tax legislation, each invoice issued by a person who is registered to
charge service tax must meet the following requirements:
✓ Each invoice and receipt must bear a serial number and must be dated.
✓ Each invoice must be printed in duplicate and a copy of every invoice and receipt
issued shall be retained for the purpose of inspection by the Customs Department
in the event of an audit.
✓ Service tax shall only be levied on the value of taxable services rendered.
✓ Amount of service tax charged is to be shown separately on any invoice or
receipt.
✓ No alteration to an issued invoice or receipt is allowed. Any mistake made shall
cause the invoice or receipt to be cancelled and clearly marked “CANCELLED”.
✓ The DG is empowered to estimate the service tax to be paid in the event that any
invoice or receipt issued is missing.
✓ Invoicing by way of electronic means and electronic delivery, without any
equivalent document paper form to the customer, is allowed subject to approval
from the DG
Penalties
▪ A taxable person who fails to pay to the DG the amount of service tax due and payable
commits an offence and shall, on conviction, be liable to a fine not exceeding RM50,000 or
to imprisonment for a term not exceeding 3 years or to both.
▪ Where any service tax due and payable is not paid wholly or partly by any taxable person
after the last day on which it is due and payable and no prosecution is instituted, the
taxable person shall pay:
a. for the first 30-day period that the service tax is not paid wholly or partly after the expiry of
the period specified, a penalty of 10% of the amount of service tax which remains unpaid
b. for the second 30-day period that the service tax is not paid wholly or partly after the expiry
of the period specified, an additional penalty of 15% of the amount of service tax which
remains unpaid, and
c. for the third 30-day period that the service tax is not paid wholly or partly after the expiry of
the period specified, an additional penalty of 15% of the amount of service tax which remains
unpaid.

▪ Subject to a maximum penalty of 40%

Alhamdulillah.. That’s all..
Thank you…