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Taxation

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Topics: Tax, Taxation, Income tax
[Name]: YuPei

[TP Number]: TP024726

[Intake Number]: UC2F1303AF {FI}

[Subject Code]: Introduction to Taxation

[Lecturer’s name]: KHO GUAN KHAI

[Assignment title]: Individual Assignment

[Date of Submission]: 31st May 2013

Context
Introduction…………………………………………..1
Personal Income Tax ……………………………..1
Tax rate……………………………………………......3
Tax relief ……………………………………………....4
Personal income tax relief……………………..5
Tax rebate…………………………………………….. 7
Taxable income and tax liability‘s calculated 8
Conclusion…………………………………………….. 10
Reference…………………………………………….. 10

Introduction
Malaysia's tax system is based on income tax as the main. The direct and indirect taxes' proportion of tax revenue ratio is 65:35 in Malaysia 2012. Of course, such a tax structure is gradually evolved with the economic development. Malaysian Direct taxes mainly includes corporate income tax, personal income tax, and petroleum income tax, among them, the corporate income tax revenue is maximum, followed by petroleum income tax and personal income tax. Indirect taxes mainly include sales tax, consumption tax, service tax and customs. Among them, the consumption tax revenue is maximum, followed by the sales tax and customs.
Personal Income Tax
An income tax is a tax on individual earnings that is paid to the national government. In Malaysia, the personal income taxpayers are divided into resident and non-resident. The Resident pay taxes on income derived from all over the world. And the non-residents only pay tax on income derived from the territory of Malaysia. Section7. Residence: individuals.
(1) For the purposes of this Act, an individual is resident in Malaysia for the basis year for a particular year of assessment if-
(a) He is in Malaysia in that basis year for a period or periods amounting in all to one hundred and eighty-two days or more;
(b) he is in Malaysia in that basis year for a period of less than one hundred and eighty-two days and that period is linked by or to another period of one hundred and eighty-two or more consecutive days (hereinafter referred to in this paragraph as such period) throughout which he is in Malaysia in the basis year for the year of assessment immediately preceding that particular year of assessment or in that basis year for the year of assessment immediately following that particular year of assessment:
[Subs. Act 337:s.7]
Provided that any temporary absence from Malaysia-
(i) Connected with his service in Malaysia and owing to service matters or attending conferences or seminars or study abroad;
(ii) Owing to ill-health involving himself or a member of his immediate family; and
(iii) In respect of social visits not exceeding fourteen days in the aggregate,
Shall be taken to form part of such period;
[Am. Act 241:s.6]
(c) he is in Malaysia in that basis year for a period or periods amounting in all to ninety days or more, having been with respect to each of any three of the basis years for the four years of assessment immediately preceding that particular year of assessment either-
(i) Resident in Malaysia within the meaning of this Act for the basis year in question; or
(ii) in Malaysia for a period or periods amounting in all to ninety days or more in the basis year in question; or
(d) He is resident in Malaysia within the meaning of this Act for the basis year for the year of assessment following that particular year of assessment, having been so resident for each of the basis years for the three years of assessment immediately proceeding that particular year of assessment. If a person does not comply with the above four criteria that he will be determined a non-resident. If the taxpayers are residents, the following income shall be taxed in accordance with regulations: 1. Income generated in Malaysia. 2. Income derived in Malaysia to obtain. 3. Foreign remitted to Malaysia's income.
Reviewing the Residence and Domicile Rules in Malaysia
Economic globalization has brought unprecedented challenges to governments’ public policy, and the tax law is no exception. With the process of economic globalization, the world capital markets and the internationalization of labor markets was effectively promoted investors, corporate executives, and technical personnel fast-flowing in the international. It brings a personal source of income diverse and complex, and also to governments on individual resident taxpayer status criteria has brought some changes. Resident taxpayer status‘s determination and national tax jurisdiction exercised have closely related, and the tax jurisdiction is the embodied of a country's sovereignty in the field of taxation. Therefore, re-examine the individual resident taxpayer identification criteria’s gains and losses, has become an important task of consummate of tax law, promote economic development, and meet the challenge of economic globalization.
Residence time become the main criteria
Any person residing or staying in Malaysia reached a certain period; they will become residents of Malaysia, and bears obligation to pay taxes on worldwide income. Compared with domicile and residence criteria, time standards seem more specific and easy to grasp in practice perform.
Tax rate
Malaysia personal income tax using 19-28% of the progressive tax rate, it uses the tax declaration system. Malaysia's personal income tax threshold is 50,000 ringgit
Non-resident tax rate is 28%
Through the above analysis we can see that resident taxpayers have more tax liability than the non-resident taxpayers. Therefore, Malaysia offers many incentives to resident taxpayers. For example, tax relief and tax rebate.
Tax reliefs and rebates are given as recognition for individuals' efforts and contributions in areas consistent with the Government’s social policies. They are not intended to compensate taxpayers for the expenses they incur.
Tax reliefs and rebates are available to encourage family formation, filial piety and upgrading of skills and reliefs given in support of individuals saving for retirement and serving National Service amongst other areas.
Tax relief
Tax relief refers to the state according to a certain period of political, economic and social policy requirements educe or waive the tax burden to the production and business activities in certain special cases. Individual personal tax relief is only available for individuals who are considered tax resident in Malaysia. No tax relief is available for non-tax residents.

* Reliefs are available to individual who are tax resident in Malaysia for a year of assessment * Reliefs are deduction given to minimize the income tax liability * When total reliefs exceed the total income, the excess cannot be carried forward to the next year of assessment. * The chargeable income will be nil and no income tax will be payable.
Personal reliefs are generally allowed as deductions from the total income of an individual in arriving at chargeable income. Such reliefs are available for those individuals who are resident in Malaysia for the basis year for a year of assessment. In the case of non-resident individuals who are Malaysian citizens, a relief known as non-resident relief is allowed if certain conditions apply. Non-resident relief is limited to a non-resident individual who is a citizen and exercises an employment outside Malaysia in the public services or the service of a statutory authority and becomes a non-resident by reason of that employment (Section 130). Otherwise, non-residents are not entitled to any personal reliefs. The various reliefs available under the Act are:
(a) Personal relief;
(b) Wife relief;
(c) Child relief; and
(d) Relief for life insurance premiums and contributions to approved schemes.
TYPES OF RELIEF
Slide 7 of 16

Personal income tax reliefs
Malaysia personal income tax reliefs can be deducted as follows: 1. Personal tax reliefs are $ 9,000 ringgit. If couples filing separately, then the husband and wife all will have a 9,000 ringgit reliefs. If filing a joint return or spouse not working, the allowance is increased to 3000RM.
2. The children under 18 years old will have reliefs of $ 1,000 ringgit / person. Unmarried children over 18 years will have reliefs of $ 1,000 ringgit / person. And still studying (including foreign students) child will have reliefs of $ 4,000 ringgit / person. Disabled children (unmarried) will have reliefs of $ 5,000 ringgit / person. When couples filing separately, the husband or wife should reported the child’s reliefs.
3. Credited for their children‘s National Education Savings Fund deposits the reliefs is 3000RM. If couples filing separately, then each person will have 3,000 ringgit national education savings fund deposit reliefs.
4. Fund /Life insurance reliefs of $ 7,000 ringgit.
5. Education and medical insurance (itself, spouse or child) of reliefs of $ 3,000 ringgit.
6. Medical medical examinations of reliefs of $ 500 ringgit. Parents for medical expenses tax-free $ 5,000 ringgit. Themselves, their spouses and children are also entitled to medical expenses reliefs of 5,000 ringgit. Disabled (itself, spouse, children or parents) can get an additional allowance of 5,000 ringgit. Purchase disability support equipment allowance of $ 5,000 ringgit.
7. Charitable donations do not exceed 7% of income’s portion duty-free, but Islam donations are fully tax deductible.
8. In order to improve the national quality of the various allowances are as follows:
a. Purchase of PC (once every three years, including computer accessories and software) of reliefs is $ 3,000 ringgit.
b. Order broad band’s reliefs are $ 500 ringgit.
c. Buy sports equipment’s reliefs are $ 300 ringgit.
d. Buy magazines / journals / books / publications (not including newspapers and banned books) exemption of $ 1,000 ringgit.
e. To obtain technical expertise, industrial skills, degree (Bachelor / Master / PhD), recognized by the government agencies in Malaysia to learn about courses tuition paid by the tax-free $ 5,000 ringgit.
Resident taxpayer's annual income after deducting the tax reliefs, and then translated into "taxable monthly income" and then tax. Non-tax residents will not be able to enjoy these benefits, only in accordance with the tax rates to tax.
Tax reliefs is means that any program or incentive that reduces the amount of tax owed by an individual or business entity. Examples of tax relief include the allowable deduction for pension contributions, and temporary incentives such as tax credits for the purchase of new high-efficiency heating and cooling equipment.
Tax relief is intended to reduce the tax liability of an individual or business entity. Often, the tax relief is targeted at providing aid for a certain event or cause. For example, hurricane victims may be allotted some form of tax relief when a hard-hit area is declared a disaster area. Tax relief is also available periodically to support environmental causes, as seen with tax credits for the purchase of energy-efficient appliances or the installation of energy-efficient windows.

Tax rebate
A tax refund or tax rebate is a refund on taxes when the tax liability is less than the taxes paid. Taxpayers can often get a tax refund on their income tax if the tax they owe is less than the sum of the total amount of the withholding taxes and estimated taxes that they paid, plus the refundable tax credits that they claim. (Tax refunds are money given back at the end of the financial year.) It usually includes the export tax rebate, tax refund on reinvestment; re-export tax rebates, and other forms of profit tax levy.
Resident taxpayers can enjoy tax rebate policy in Malaysia. For example, the export tax rebate, tax refund on reinvestment, re-export tax rebates, profit tax levy, resident taxpayers can accord their actual situation to enjoyment of these benefits. However, non-resident taxpayers need to pay tax on all income derived from Malaysia.
Where chargeable income of a resident individual in a year of assessment does not exceed RM 35,000, a rebate of RM350 will be given, with effect of year of assessment 2009 it would be RM400
The rebate is given as a deduction against income tax payable
In joint assessment an additional RM350 will be given to the wife, with effect of year of assessment 2009 it would be RM400
Rebate will be granted for any zakat,fitrah or any other Islamic religious dues payment which is paid in the basis year.
Foreign expatriates (resident or non-resident) making fees payment to Government for employment pass, visit pass or work permit will be given rebate for those payment
Where total rebate exceeds tax payable, the excess shall not be paid to the taxpayer or allowed to be carried forward.
Taxable income and tax liability‘s calculated.
The taxable income is accordance with the total balance after subtracting the various deductions calculations. Medical benefits and child benefits provided by employers are not taxable. Employee leaves travel one time a year, the maximum limit of 3,000 ringgit and local travel three times a year tax-free. Rent-free accommodation provided by employers that are less than employees’ all cash or the actual rental value 30% for evaluation. Of course, these are only a Malaysian resident taxpayers can enjoy the benefits; Non-resident taxpayers cannot get the benefits. When non-resident employees are working in Malaysia for 1 year under 60 days, their income from Malaysia is not taxable.
Diaspora in Malaysia operational headquarters and regional offices in Malaysia only achieved during its taxable income portion to pay personal income tax.
Foreign tax credits
Resident taxpayers can deduct from their taxes in foreign tax paid. Signed with that country has a tax treaty, allowed to deduct all foreign taxes and the taxes pay in Malaysia the amount of foreign source income at the lower. If there is no tax treaty with that country, deduction is limited to half the tax already paid on foreign.

2010 personal income tax rate in Malaysia | Level | Taxable monthly income (RM) | Rate | Required to pay the tax (RM) | 1 | The first part | 2,500 | 0% | 0 | | Revenue | 2,500 | | 0 | 2 | Next | 2,500 | 1% | 25 | | Revenue | 5,000 | | 25 | 3 | Next | 5,000 | 3% | 150 | | Revenue | 10,000 | | 175 | 4 | Next | 10,000 | 3% | 300 | | Revenue | 20,000 | | 475 | 5 | Next | 15,000 | 7% | 1,050 | | Revenue | 35,000 | | 1,525 | 6 | Next | 15,000 | 12% | 1,800 | | Revenue | 50,000 | | 3,325 | 7 | Next | 20,000 | 19% | 3,800 | | Revenue | 70,000 | | 7,125 | 8 | Next | 30,000 | 24% | 7,200 | | Revenue | 100,000 | | 14,325 | 9 | Excess | 100,000 | 26% | |
Above table, 2010 personal income tax‘s "threshold" is 2,500 ringgit in Malaysia. Malaysia's personal income tax is using monthly in advance, subject to year-end liquidation mode. Annual income after deducting various allowances, and then translated into "taxable monthly income." the people who Income at 35,000 ringgit or less, there is the personal income tax rebate RM400; when the non-working spouses or couples filing jointly, the spouse also has a personal income tax rebate of RM400. This means that personal income tax payable 400 ringgit (joint return when 2 × 400 = 800 ringgit) and below, in fact is no tax. According to the table above, if a resident taxpayer in 2010 taxable monthly income of 10,000 ringgit, he needs to pay personal income tax 175 ringgit, the combined tax rate of 1.75% but because of the personal income tax rebate of RM400, so in fact is no tax. And Non-residents must pay 175RM personal income tax.
Conclusion
The tax system as a normative tax distribution between countries and between taxpayers legal system, it has great significance in real economic life. Pay taxes according is a fundamental obligation of citizens. It can help countries implement effective redistribution of wealth, maintain the countries normal operation. Therefore, People need to conscientiously fulfill tax obligations, in order to make the country have better development, people more prosperous.

Reference 1) Definition of tax relief [online]. [Accessed 10 April 2012]. Available from: http://taxrelief.org.uk/ 2) Definition of tax rebate: http://en.wikipedia.org/wiki/Tax_refund 3) Definition of resident taxpayers [online]. [Accessed 10 April 2012]. Available from::http://www.cftl.cn/show.asp?c_id=555&a_id=3917 4) The definition of non-resident taxpayers[online]. [Accessed 10 April 2012]. Available from: http://baike.baidu.com/view/1047266.htm 5) Resident taxpayers and non-resident taxpayers’ difference[online]. [Accessed 10 April 2012]. Available from: http://zhidao.baidu.com/question/280639796.html 6) INCOME TAX ACT 1967 (ACT 53) [online]. [Accessed 10 April 2012]. Available from: http://www.kpmg.com.my/kpmg/publications/tax/22/a0053s0007.htm

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