| |
|
|
| |
| What is taxation? |
| |
| Taxation is a process of revenue (money) collection from individuals or companies, for use in the country’s development, by providing various facilities (for example, education, healthcare, national security, welfare) for the well-being of all citizens. All taxes collected are based on parliament-approved acts. |
| |
|
|
| |
|
Purposes of taxation:
1. Source of government revenue
- to govern the country
- to finance the country’s development projects
- to redistribute income to address inequality in the society
2. Government policy implementation tool
- Tax can be levied in line with government policy, so that the policy is more effective
- For example: tax relief for parents’ medical expenses, in order to cultivate caring community
- For example: real property gains tax is imposed when the government wants to reduce excessive property investment activities
3. Control of sales of goods or services
- Taxes can be levied on certain goods or services so that people are discouraged from buying certain goods or services. For example: tobacco tax, alcohol tax and gambling tax.
4. Financial tool to stabilise the economy
- In some cases, taxation is one of the financial tools for the government to stabilise the economy.
|
| |
|
How is tax revenue used?
- Education
- Healthcare
- Social Welfare
- Infrastructure and Public Facilities
- Agriculture and Industrial
- National Security and Defence
- Development
|
| |
|
Types of taxes:
1. Income tax
- The tax imposed on income earned by a salaried individual or a company operating in
Malaysia.
- Each salaried individual and profitable company is required to register as a taxpayer, assess annual income and pay income tax annually.
- Report all income, tax exemption, tax reduction, tax relief and tax rebate by submitting Income Tax Return Form, ITRF (in Malay Borang Nyata Cukai Pendapatan, BNCP), either by form, or electronically via internet (ezHasil).
- Collector: Lembaga Hasil Dalam Negeri (LHDN).
2. Road Tax
- The tax levied on road user who owns vehicles including motorcycle and car.
- Vehicle owner must pay road tax before the existing road tax expires. The expiry date is printed on road tax receipt (Lesen Kenderaan Motor) that must be affixed or shown on the vehicle.
- Vehicle with expired road tax of more than one year must be sent to Puspakom for inspection. Puspakom inspection report and tax payment must be submitted to Road Transport Department in order to reactivate the road tax.
- If the road tax is not paid, the vehicle will not be allowed on the road.
- Collector: Jabatan Pengangkutan Jalan (JPJ).
3. Property Assessment Tax
- The tax levied on all holdings or properties (residential houses, industrials, commercial buildings and vacant lands) in order to cover municipal expenses such as rubbish collection, drain cleaning and maintaining public parks.
- Collector: Local authority, such as municipal council or district council.
4. Quit Rent
- The tax levied on the owner of agricultural land, corporate land and land with building.
- This tax is interpreted as Lease under Section 5 of National Land Code 1965.
- Collector: State land authority, which is State Land Office.
5. Sales and Service Tax
- Sales and Service Tax enforced on 1 September 2018, consists of two parts, namely sales tax and service tax.
- Sales tax is a tax levied only once on various taxable goods at the stage of manufacturing or during importation.
- Service tax is a tax levied on consumer who receives taxable services, such as hotel services, insurance and takaful, food and beverages preparation, telecommunications and credit cards.
- Manufacturers or importers with sales value of taxable goods exceeding RM500 000 per annum shall register under Sales Tax Act 2018.
- Service providers with value of taxable services exceeding threshold of RM500 000 per annum as well as food and beverage service providers with value of taxable services exceeding threshold of RM1 500 000 per annum, shall register under Service Tax Act 2018.
- Tax collection is a responsibility of service providers on the government’s behalf. Service tax must be collected from the customer who receives the services. Service tax collected by the service providers will be paid to the government within a designated period.
- Collector: Jabatan Kastam Diraja Malaysia (JKDM).
|
| |
| How to calculate income tax? |
| |
| Income tax to be paid by an individual can be calculated through the calculation process as shown in the flow chart below: |
| |
| \(\text{Calculate Chargeable Income}\rightarrow\text{Calculate Income Tax}\rightarrow\text{Subtract Tax Rebate}\rightarrow\text{Payable Income Tax}\) |
| |
|
|
| |
| Chargeable Income Formula |
| |
| \(\text{Chargeable income}=\text{total annual income}-\text{tax exemption}-\text{tax relief}\) |
| |
| Total annual income: includes all forms of wages, salaries, bonuses, dividends, interest, rentals, royalties, premiums and so on. However, not all the income received from the employer is taxable, for example, petrol or transport allowance, employer’s subsidies such as housing and car subsidies, medical benefits. |
| |
| Tax exemption: refers to all personal expenses in the forms of gifts, donations, contributions to government or various organisations, for example state libraries and healthcare organisations. These expenses may be tax exempted but are subjected to certain limits in amount. These tax exemptions aim to promote developments in cultural and arts as well as in cultivating a caring society. |
| |
| Tax relief: refers to items or expenses, which are not taxed, for the benefit of the individual or family members, for example Employees’ Provident Fund (EPF), medical treatment and education fees. Items of tax relief depend on the policy set by the government and may change from year to year. |
| |
|
|
| |
| Income tax |
| |
| After obtaining chargeable income, income tax can be determined by referring to tax rates table. Tax rates are fixed by the government and may vary based on the government policy on the annual budget. |
| |
|
|
| |
| Tax Rebate |
| |
| Tax rebate is given to reduce tax to be paid. There are 2 types of tax rebate, namely: |
| |
- Tax rebate of RM400 will be given to taxpayer if the chargeable income does not exceed RM35 000, subject to change.
- The amount of zakat or fitrah paid by Muslim citizens.
|
| |
|
|
| |
| Example 1 |
| |
| Encik Khairul has an annual income of RM125 300, including allowances. It is given that the allowances amounting to RM12 340 are tax exempted. At the same time, he has made a donation to a library amounting to RM2 000. The total tax relief, on the other hand, is RM22 500. Calculate Encik Khairul’s chargeable income. |
| |
| Solution: |
| |
| \(\begin{aligned} &\text{Total annual income}\\ &=\text{RM }125300-\text{RM } 12340\\ &=\text{RM } 112960.\\\\ &\text{Chargeable income}\\ &=\text{total annual income – tax exemption – tax relief}\\ &=\text{RM }112960-\text{RM }2000-\text{RM }22500. \end{aligned}\) |
| |
|
|
| |
| What is monthly tax deduction (Potongan Cukai Bulanan, PCB) and related calculation? |
| |
| Monthly Tax Deduction ( Potongan Cukai Bulanan, PCB) is salary deduction of an employee for income tax payment of current year. The deduction amount is based on the table of monthly tax deduction or PCB computational calculation method provided by Inland Revenue Board (IRB). |
| |
| Taxpayers should make comparison between total amount of PCB deducted and tax payable as shown below. |
| |
| \(\begin{aligned} 1)&\text{When: Tax payable $\gt$ PCB}\\ &\text{Tax$-$PCB $=$ Insufficient tax payment}\\ &\text{Insufficient tax payment must be made to LHDN}\\\\ 2)&\text{When: Tax payable $\lt$ PCB}\\ &\text{PCB$-$Tax $=$ Excess deduction}\\ &\text{Excess deduction of PCB will be refunded by LHDN to taxpayer’s bank account} \end{aligned}\) |
| |
|
|
| |
| Example 2 |
| |
| Mr Lim’s annual salary was RM74 000 in 2020. He claimed the following tax reliefs: individual for RM9 000, life insurance and EPF for RM7 000, medical insurance for RM1 325 and medical treatment expenses for his mother for RM1 250. He has also donated RM1 000 to an approved welfare centre. His salary was deducted monthly by RM180 for monthly tax deduction (PCB). |
(a) Calculate the income tax payable for that year.
(b) Does Mr Lee need to pay any more income tax after the monthly deductions? Explain your answer. |
| |
| Solution: |
| |
| a) \(\begin{aligned} &\text{Chargeable income}\\ &=\text{total income $-$ tax exemption $-$ tax relief}\\ &=\text{RM74 000 $-$ RM1 000 $-$ (RM9 000 $+$ RM7 000 $+$ RM1 325 $+$ RM1 250)}\\ &=\text{RM54 425}\\ &\text{Mr Lim’s chargeable income, RM54 425 lies in the range of chargeable income as below.} \end{aligned}\) |
Chargeable Income
(RM) |
Calculations
(RM) |
Rate
(%) |
Tax
(RM) |
| 50 001 - 70 000 |
| On the first 50 000 |
| Next 20 000 |
|
|
|
|
| \(\begin{aligned} \text{Tax on the first RM50 000 }&=\text{ RM1 800}.\\ \text{Tax on the next balance} &= \text{(RM54 425 – RM50 000) $\times$ 14$\%$}\\ &= \text{RM619.50} \end{aligned}\) |
| \(\text{Eligible rebate $=$ RM0 (due to chargeable income $\lt$ RM35 000)}\) |
| \(\begin{aligned} &\text{Income tax payable}\\ & = \text{RM1 800 $+$ RM619.50 $-$ RM0}\\ &= \text{RM2 419.50} \end{aligned}\) |
| |
| b) \(\begin{aligned} &\text{Total PCB deducted}\\ &=\text{RM180 $\times$ 12}\\ &=\text{RM2 160}\\ &\text{Tax payable $\lt$ PCB. Thus, there is insufficient tax payment.}\\ &\text{Insufficient tax payment}\\ & =\text{RM2 419.50 $-$ RM2 160}\\ &=\text{RM259.50}\\ &\therefore \text{Mr Lim needed to pay RM259.50 to IRB because the}\\ &\text{ deducted PCB was insufficient for his income tax.} \end{aligned}\) |
| |
|
|
| |
| What is joint tax assessment and separate tax assessment and related calculation? |
| |
| Joint tax assessment: Tax assessment filed by husband (or wife). Wife’s income (or husband’s income) is aggregated with husband’s (or wife’s) when filing tax assessment. |
| |
| Separate tax assessment: Husband and wife each file their own tax assessment. |
| |
|
|
| |
| How to calculate road tax? |
| |
| Road tax is levied based on the engine capacity of the vehicle used by the owner. Normally, road tax will be higher for a vehicle with a higher engine capacity. |
| |
|
|
| |
| Property assessment tax formula |
| |
| \(\begin{aligned} \text{Property assessment tax} = \text{property assessment tax rate}\times\text{annual value} \end{aligned}\) |
| |
| Property assessment tax rate is set by local authority based on location and type of property. The amount of tax payable each year depends on the tax rate charged on the annual value. |
| |
| Annual value is a reasonable gross estimation of annual rental that is expected to be obtained in a year from a property, if it is rented out. |
| |
|
|
| |
| Example 3 |
| |
Mariani owns a residential house in Subang Jaya. She receives property assessment tax bill from Subang Jaya Municipal Council. It is given that the annual value is RM6 580 and the property assessment tax rate is 5%. Calculate the property assessment tax payable by Mariani
for each half-year. |
| |
| Solution: |
| |
| \(\begin{aligned} &\text{Property assessment tax}\\ & =\text{ property assessment tax rate $\times$ annual value}\\ &= 5\% \times \text{RM6 580}\\ &= \text{RM329 per year}.\\\\ &\text{Property assessment tax for each half-year}\\ &=\frac{\text{RM329}}{2}\\ &=\text{RM164.50 each half-year} \end{aligned}\) |
| |
|
|
| |
| Quit rent formula |
| |
| \(\begin{aligned} \text{Quit rent} = \text{quit rent rate per unit area}\times\text{total land area} \end{aligned}\) |
| |
| Quit rent rate is fixed by the state government based on location, size and type of land. The amount of tax payable each year depends on the quit rent rate per unit area on the total land area owned. |
| |
|
|
| |
| Example 4 |
| |
| Mr Hamid owns a house with an area of 130 m². It is given that the quit rent rate levied is RM0.43 per square metre. Calculate the quit rent payable by Mr Hamid each year. |
| |
| Solution: |
| |
| \(\begin{aligned} &\text{Quit rent}\\ & = \text{quit rent rate per unit area $\times$ total land area}\\ &= \text{RM0.43 $\times$ 130}\\ &= \text{RM55.90 each year} \end{aligned}\) |
| |
|
|
| |
| How to calculate sales and service tax? |
| |
| Sales tax rates on goods are different, which is 5%, 10% or other rates depending on the goods, while service tax rate is 6%. |
| |
|
|
| |
| Example 5 |
| |
| Sofia rented a room at Hotel Selesa for RM240 per night. Sofia stayed at the hotel for two nights. It is given that the hotel charges 6% for service tax. Calculate the service tax to be paid by Sofia. |
| |
| Solution: |
| |
| \(\begin{aligned} \text{Service tax}& = \text{RM240 $\times$ 2 × 6}\%\\ &= \text{RM28.80} \end{aligned}\) |
| |
|
|
