Personal Income Tax System In Malaysia

A impose income is a financial vote down or early(a) levy impose upon a evaluate counterbalanceer that known as an soul or legal entity by a state or the functional equivalent of a state much(prenominal) that failure to wage is punishable by law. Taxation is a compulsory levy that the brass of a domain go forth finance their expenditure by lofty charge to the souls, individualistics, worryes and other bodies to allows the disposal provide m oney needed for them to stick out their operation and to achieve economic objective of the government. Tax is actually non meant to be paid by all peck only foc usances towards close to class of people.As for somebodyal income assess, it need to be paid by the person who earns income up to certain amount and for unified evaluate income, it imposed on the corporate entity that makes profit from the railway linees. In achieving the economic objective, government will view whatever action such as reduction in levy inco meable person income by the amount paid as the by-line on airscrew mortgage loans which will generates to a greater extent jobs, encourage public to purchase a topical anesthetic produce, reducing inflation and discourage the outlay of certain respectables.In Malaysia value arrangement, it comprises of corporate and personal income taskation, custom duty and local valuate. The personal income impose is nonresistant for the individual who has income that derived from Malaysia or received in Malaysia from outdoor(a) Malaysia for a course of instruction of discernment. The impose will be imposed to the occupier and non-resident individual in antithetic ways.The resident individual will battlefield to income tax derived from Malaysia and income received in Malaysia for outside Malaysia whereas non-resident individual will be assailable to income tax accruing in or derived from Malaysia. In contrast, non-resident is clear to tax at a flat rate of 25%. In additional, income that received by an individual in Malaysia which income is derived from outside Malaysia is exempted from tax with effect from the year of judgement 2004.Under section 4 of Income Tax Act 1967, income that is subject to tax comprises of scratch 4(1)(a) which is chance ons from a rail line, Section 4(1)(b) which is gains from an battle, Section 4(1)(c) which is dividends, interest or discounts, Section 4(1)(d) which is rent, royalties or premiums, Section 4(1)(e) which is pension, annuities or other periodical payment which argon non falling nether any of the foregoing paragraph and lastly under(a) Section 4(1)(f) gains that non falling under any of the foregoing paragraphs. as well as that, non-resident individual argon a wish wellsubject to tax of the amount paid in friendliness of a service of process rendered by the person or employee for the use of topographic signify of any plant, machinery or other apparatus purchased from such person. Under big(p) gain s, it will be tax in the form of real piazza gains tax. This tax is arising from disposal of real lieu in Malaysia.Real blank space gain tax is known as tax on disposal of shares in real goodty companies which owns shares defined nurse of such asset non less than 75% of the companys total tangible assets.Starting from 2010, disposal of real properties that are held for 5 years and below are subject to real property gain tax which the tax rate is 5%. In contrast, for the employment income, employer is required to deduct tax calendar monthly from their employees remuneration and acquaint it to the Inland Revenue Board of Malaysia.For corporate income tax, resident companies are subject to tax on income accruing in or derived from Malaysia. Income that received in Malaysia from outside Malaysia is exempted from tax except for the companies that involved on the telephone line of insurance, banking, sea or air transportation.Non-resident companies are subject to tax on income acc ruing in or derived from Malaysia only. Incomes that are derived from outside Malaysia which is remote income will be non-taxable income. Business income of non-residents is subject to tax once it derived through a permanent initiation in Malaysia.There is a self-assessment in the tax organisation in Malaysia which required individuals to burden and pay their tax based on the cadence requirement. An individual moldiness file and pay their tax if they has a guilty income for a year of assessment and has no chargeable income for the year of assessment.An individual who has a chargeable income for the year of assessment, they required to furnish a return for the immediately forego year and have furnished a return for the immediate preliminary year. Under Income Tax Act 1967 of Section 2 describe that royal line as any sums paid as right to use the artistic, patents, copyright, design, trademarks, films where such films are to be utilize in Malaysia. A person who is liable to p ay a royalty that has a Malaysian seeded player to an individual who is non known to him to be a resident in Malaysia and to a company, partnership or any other body of persons who does not deal a business in Malaysia.Besides that, the royalty is said to be derived from Malaysia if the business for the payment lies with a resident of Malaysia and the responsibility for the payment lies between the government and state government itself.There is a term of local tax in Malaysia which refers to as the property tax collected by the local regimen for the provision of service to the residents. The property tax is levied on all property such as agricultural, factories, residential and shops located in the areas under jurisdiction of local authorities.Further more(prenominal), the rate of the tax collected is different from one local government to another and it is also different in form of the property rights. forefront 1(B) Examine the tax revenue needs of the afford times (loca lly and inter contently).So outlying(prenominal) Malaysia is using an income based extend tax for the purpose of taxation of right(a)s and go in the country and with international minutes. So, isnt it better for the country to toss to a use based in place taxation?First of all, what is the deflection between steer and indirect tax. The difference between a direct and indirect tax is a challenging issue. It depends on whether it is stanceed on the economic way or on the legal way. In this case the interest is endown to the economic view only.Based on economic perspective, a direct tax will refer to any levy that is both imposed and collected on a specific group of people or organizations. An example of direct taxation would be income taxes that are collected from the people who actually earn their income.In the opposite, indirect taxes are collected from someone or some organization other than the person or entity that would normally be responsible for the taxes in other wo rds, an indirect tax is technically an income tax levied against people, corporations, and other legal entities.A sales tax, for instance, would not be canvassed a direct tax because the money is collected from merchants, not from the people who actually pay the tax (the consumers). A goods and go tax in Malaysia (GST), a value added tax, was scheduled to be instrumented by the government during the third arse of 2011.Its purpose is to replace the sales and service tax which has been used in the country for several decades. The government is seeking additional revenue to trip its budget deficit and reduce its dependence on revenue from Petronas, Malaysias state-owned embrocate company.They estimated to four-percent the tax rate in order to replace a sales-and-service tax of between five and ten percent. The Goods and Services Tax Bill 2009 was tabled for its initial reading at the Dewan Rakyat (the lower house of the Malaysian parliament) on 16 December 2009.It was delayed am id mounting criticism. The government responded by asserting that the tax on oil income will not be sustainable in the future. National Consumer Complaints Centre head Muhammad Shaani Abdullah has said, The government should create more sentiency on what the GST is.The public cannot be blamed for their lack of understanding, and thus, their fears. Shaani says that the GST will emend accounting, reduce tax fraud, and facilitate enforcement of the upcoming Anti-Profiteering Act.Muslim Consumer Association of Malaysia leader Datuk Dr. Maamor Osman said the GST could help end dishonest business practices, but uttered concern about how the tax would be utilize to medical products and run. A group leading the campaign against the GST, Protes which objects to the GST because of concerns about its effects on low-income Malaysians, cancel a planned protest but has stated that they will expect to agitate against the legislation Difference between Malaysian taxation and other countries, they need to harmonize.Most of the countries in the world currently use income based taxation. Those countries use two forms for taxation purpose territorial or residential. Malaysia is one of the hardly a(prenominal) countries in the world using territory based taxation. The tax is applied mainly over local income, in other words, income from a source inside the country. Malaysia operates under a Self-Assessment System (SAS) and income is taxed on a territorial basis.Income tax in Malaysia is imposed on income accruing in, or derived from, Malaysia except for income of resident companies carrying on a business of air or sea transport, banking or insurance, which are taxed on a worldwide basis. Foreign-source income received in Malaysia is not taxable.In the residential dust, residents of the country are taxed on their worldwide income (local and foreign). This difference of tax systems may overlap some time, giving rise to a taxation issue. Some taxpayer may be taxed more than once.There is another group, the United States which applies tax based on citizenship. There will be taxation mesh at the international level. For instance Malaysia and Singapore have a tax agreement in order to turn away twofold taxation for the resembling person and the same income between the two countries.Based on the preceding, the taxation system in Malaysia should be reviewed in order to simplify the international transactions as well as multinational operations between the country and others. This could help to ease the business transactions both locally and internationally.Taxation used as a tool to attract investors which useful to note that the Malaysian Government, in trying to attract foreign direct investment, is amiable to consider pre-packaged incentives, Factors such as the size of investment, level of spin-off, employment opportunities, and technology transfer, whether of national and strategic importance will play a role for granting of the incentive. Malaysi a is experiencing an addition inflow of investors from around the world because of motley reasons. One of the main reasons is the tax incentive provided by the government to attract foreign outstanding and know-how.At this point the country is doing very well to gain competitive attractiveness. The tax legislative assembly in Malaysia keeps updating the tax law very often to adopt the countrys development need. Switch tax policy is a need as in a multi- distributor point, broad-based Goods and Service tax (GST) has been inform by the Malaysian Government to replace the existing single stage sales tax and service tax. The instruction execution date remains unannounced at this juncture. The Malaysian tax specialists deemed more beneficial to make this switch.Experts also have argued that complexities due to timing and inflation adjustment should be avoided. To do so, the authorities need to switch the taxation system from an income based one to a consumption based one. Under suc h a system all business purchases would be deducted immediately.Borrowing in excess of investment would be added to income, and lending would be subtracted the resulting tax base would be consumption. Through the tax saving resulting from expensing, the government, in effect, becomes a partner in all investments the revenues it subsequently receives are best seen as the return on its investment.A consumption-based tax imposes no burden on income from marginal investments, because the private investor keeps all of the income relating to his share of the investment. As a result, such a tax does not favour present consumption over saving for future consumption, as the income tax does.Some economists view the flat tax as an alternative that is even simpler than consumption-based taxation but would achieve mistakable economic effects. It works by exempting most capital income from taxation at the individual level that is, only labor income is taxed.This proposal, like consumption-based taxation, suffers from the loss ofprogressivity those results when the tax on most capital income is eliminated. No country uses either of these consumption-based direct taxes. To sum up, the Malaysian authorities has some changes to make in order to improve its own tax system and support the economic growth of the country.The current tax system is not bad or unproductive, but just to improve through the establishment of a tax policy that is more or less similar to at least the neighbouring countries or least extend the bilateral and nine-sided tax agreement with the business partners, as well as the foreign investors.It is also soaringly advisable deepen the analysis about the implementation of the consumption based taxation to determine whether the switch could be beneficial. Question 1(C) Discuss whether system of tax on goods and services is now well-timed and appropriate for Malaysia.Goods and services tax (GST) is known as a consumption tax based on the value-added concept . It imposed on sales of goods and services in every production. The tax consumption which the indirect tax aerated towards importations and on the value added to goods and services sold by one business to another, or to the end consumer.The new tax system of GST is considered as more efficient tax system. The implementation of GST replaces the current Malaysian service tax and sales tax. Sales tax is a form of indirect taxation which imposed on consumers and collected by business entities darn service tax is a form of indirect tax imposed on specified services called as taxable services when the services are provided to the consumer at the time. There are lots of arguments arrived on the introduction of GST in Malaysia especially from various parties who is the taxpayer whether it burden the peoples when being implement.GST have more comprehensive, bluff tax system. It inclusive of the manufacturing and distribution stages as well as providing a tax credit claim for GST paid on b usiness inputs while the sales tax is imposed only at the manufacturing stage when the goods are manufactured or imported.Thus, the GST will overcome the various weaknesses inherent in the present consumption tax system such as double tax, leakages thru transfer pricing and more. The government implement GST as part of their tax reform programme.The objective of this new system, GST is to enhance the capability, effectiveness and transparency of tax administration and management. GST covers all types of goods & services sold to Malaysian & non-Malaysian residents except for popular commodities.Government evaluate that the consumers will have benefit from the price reduction in most of the goods and services which has cheaper services. As a consumer, the GST will affect us as the prices of goods and services which currently have little or no taxes will increase slightly.Although there will be slightly increase in term of pricing, the government also has decided that 40 underlying goods and services will be exempted from the GST such as basic foodstuff, residential accommodation, didactics, health services, communication, water and electricity, public transportation, hardware and maintenance and more.There are various types of businesses that charged to GST. GST is charged and collected on all taxable goods and services produced in the country including imports where they need to pay the GST at the time of importation.To business supplying the good and services, they need to pay within one month at the end of taxable period, it depending towards the classification that through by the GST authorities. Thus, businesses registered under GST can charge and collect GST.The social and pricing impact studies conducted by the Ministry of Finance indicated that the suitable GST rate is in the range of 4% of value added to good and services at each stage of production. Value added in this system basically is the mark-up in arriving at the selling price of a product a nd service.The rate is indicated as a standard rate which is expected to give benefits and to reduce the unduly burden of the rakyat and consumers especially to whom that fall in the lower income group. A business that have annual turnover that is more than RM500, 000 needs to register for GST, this is to ensure that the small businesses are free from GST. The modification can be do by manually or online within 28days from the end of the month where the threshold is reached.Towards businesses that are not reached the threshold, they can voluntarily hire to be registered under the GST and the businesses must remain in the system for at least 2 years followed in the policy. If the government implement it in Malaysia, they will provide a sufficient time for business and industries to make them ready as GST is the new tax system.It will be around 18 to 24 months as various businesses have different types of primary activities in their businesses. Lots of preparation need to be done i ncluding preparing their business data processor system, hardware and software to get ready for this implementation.Who will responsible to handle the GST accounting and GST taxation as it involved pose up business records, calculation of GST taxes and more. Training is needed either done by the government or by sending the staff for external training as this will increase the rate of readiness towards this implementation.In additional, the issues on transitional of GST tax need to be study as to avoid the double taxation and disruption. Therefore, they need to understand the detailed rules and consider how GST would apply to their own business operations to avoid any problems occur in future after the system is being implemented.Corruption is not a disused thing in Malaysia as businesses has already included corruption prices in goods & services. How does that not reflect additional costs to consumers? Therefore, the government need to take step in controlling the prices.They ne ed to ensure that the businesses do not take advantage of the GST implementation to increase prices of goods to make excessive profits. A Heavier fines and penalties will be imposed to make sure that the businesses comply with the rules and procedures formulated. Towards transaction with the issues relating to non-compliance and fraud, various approaches will be used by the government.A risk assessment programme will be used to identify types of businesses and persons with high vogue to commit non-compliance and fraud. Moreover, a comprehensive audit programmes is one of the programme that being used to all business and this programme also will be used in the system to fight non-compliance and fraud cases.Thus, a business records and accounts need to be audit by independence auditor to give a true and fair view of the financial statement. Prime curate has guaranteed that there is no inflation but with the introduction of GST, the chain of evanescent the cost will end up usually a t the detainment of consumers.The multiple stage tax of GST would rise up the final consumption price which might lead to inflation in short while. Malaysia economic would be more conservatives and tided to move forward for low income workers with a high living cost that can be seen in present time.A good approach can be seen when the government learn and get good references from countries that impose GST such as Singapore and Thailand before implemented the tax scheme. Last but not least, the result of GST implementation could not be seen in this current time but they need to ensure that the GST does not burden the people, especially the lower-income group.As a business taxpayer they need to be merry and aware regarding this new implementation. Organised seminar or workshop need to be attend to have a better understanding and at the same time will reduce any conflict occur. GST awareness and education programmes need to be conducted on an on-going basis until the GST is implement ed and the answer from the eyeshot can help the government to make decision and a proper preparation need to be done as in computer system or in other medium that GST will be used in future. Therefore, the government need to give businesses ample time to be ready for GST implementation.