Income tax refers to an amount of tax that an individual or company is
obligatory to fulfill according to their annual income. The amount is
determined according to government’s graduated scale. Malaysian government
imposes various kind of tax that can be divided into income tax, gift tax,
property tax, corporate tax, estate tax and many more.
Income tax is imposed based on territorial basis.
Starting from 1st of
January 2004, foreign income sent into Malaysia does not have to fulfill the
tax. Income tax imposed on individuals vary from 0 up to 28 percent after
deducting personal relief while for non-resident, tax imposed is 28 percent
without personal relief.
Malaysian government evaluates taxpayers’ liability in two different methods
that are formal assessment system and also self-assessment system. Formal
assessment system is whereby taxpayers need to fill up forms to affirm their
income. Later on, taxpayers are required to pass the forms back to Inland
Revenue Board (IRB, commonly known as Income Tax Office). The board would then determine the final assessment.
Taxpayer will receive a notice of assessment prepared by the board. The form
states the tax amount that the taxpayers need to settle to IRB.
While in self-assessment system, taxpayers also need to fill up forms before
submitting it back to IRB.
However, the next step is different from formal
assessment system. In formal assessment system, the notice of assessment
would be sent to taxpayers. In self-assessment system, no notice of
assessment would be issue to taxpayers. Instead, taxpayers need fulfill the
required amount through monthly payments before the due date. The amount is
based on the estimation by the taxpayers themselves.
As referred to the above system, residents need to fill up tax return form
(FORM BE) the latest by 30th April the following year. Taxpayers need to
settle the balance after filling up the form and upon receiving notice of
assessment that is by 30th of June. Taxpayers with business source income
are also required to file in From B and settle the amount of tax as imposed
Non-resident who does not have business source income is also required to
fill up Form M and submit it the latest by 30th April the following year.
They have to settle the balance by 30th of April. While for non-resident
with business source income, they need to submit the tax return form by 30th
of June the following year. The balance is due on 30th of June.
In Malaysia, anyone earning
personal income are subjected to the Malaysian income tax scheme. This
include those who are under employment by companies from both the
private and public sectors while for those who have earned dividends and
profit from trade too or any sort of profit from economic transactions
too would need to pay tax.
Income tax rates in Malaysia varies each year although the variations
are not very much and are stipulate under Section 7 of the Malaysia
Income Tax Act 1967. It is also provided that for those earning below
RM2,500 would not need to pay income tax. Otherwise, individuals would
need to pay between 2% to 30% of their annual income after deductions
from the tax relief allowed.
would need to submit their tax declaration forms where they will have to
state their yearly income and all the deductions that they are eligible
for. This need to be done before the end of April each year. Once they
have done that, any surplus will either be refunded or carried forward.
They will need to pay the balance if there are shortages. Individuals
now can submit their forms electronically through the E-filing system
where calculations and such are automated through the self-assessment