CHAPTER 2:

1. TAX PLANNING CHAPTER 2: ROSELIZA HAMID/UITM KELANTAN/2009

2. CHAPTER OUTLINE • Definition of income tax • Objectives of income tax planning • Malaysian tax system • Tax strategy • Tax calculations ROSELIZA HAMID/UITM KELANTAN/2009

3. Taxation • Raising of money from individuals and organizations by the state in order to pay for the goods and services its provides. • Forms of tax: • Direct: deduction from income • Indirect: tax on consumption ROSELIZA HAMID/UITM KELANTAN/2009

4. TYPES OF TAX • Progressive • Increasing proportion of tax as income rises • E.g.: Malaysian tax • Proportional • Same proportion of income across all level • Regressive • Tax takes a decreasing proportion of income as income rises • E.g.: indirect tax ROSELIZA HAMID/UITM KELANTAN/2009

5. INCOME TAX • Definition of income tax: • A tax on income received • Definition of income: • any receipt of money or money’s worth for services rendered, for sale of goods, for use of amenities or facilities, for use of money and so on. ROSELIZA HAMID/UITM KELANTAN/2009

6. SOURCES OF INCOME • Gains or profits from a business for whatever period of time carried on. • Gains or profits from an employment. • Dividends, Interests or Discounts. • Rents, Royalties or Premiums. • Pensions, annuities or other periodical payments not falling under any of the foregoing paragraphs. • Gains or profits not falling under any of the foregoing paragraphs. • Special classes of income ROSELIZA HAMID/UITM KELANTAN/2009

7. INCOME TAX PLANNING Objectives: • To understand anything relates to personal taxation • Be able o minimize the amount of taxes that have to be paid • Be able to maximize disposable income ROSELIZA HAMID/UITM KELANTAN/2009

8. MALAYSIAN TAX SYSTEM • Incomes of individuals ate taxed once a year • The income earned in the previous calendar year is assessed and taxed in the year of assessment (YA) which is the following year. • All working Malaysian must submit annual tax returns by 15th April every year. • Current tax scales: marginal tax rate range from 1% - 28%. ROSELIZA HAMID/UITM KELANTAN/2009

9. MALAYSIAN TAX SYSTEM… cont. Self assessment • Taxpayer is required to complete and submit Return form by the required dates but no notice of assessment sent to the taxpayers. • Taxpayer have to compute their own tax and make full amount at the time return form were sent. • Taxpayers are allowed to make monthly payment to IRB. • Scheduler Tax Deduction Sheme allow tax payment deducted from the monthly salary and remitted to the IRB by the employer. ROSELIZA HAMID/UITM KELANTAN/2009

10. SCOPE OF TAXATION • Resident individual • Non-resident individual • Resident company • Non-resident company Resident status (Page 31) ROSELIZA HAMID/UITM KELANTAN/2009

11. SOURCES OF TAXABLE INCOME • Types of income chargeable under Sec 4 ACP 1967 • Employment income: • Wages • Salaries • Remuneration (include virtually forms) • Leave pay • Fee • Commission • Bonus • Gratuity • Perquisite, or • Allowances (e.g.:housing,travelling,entertainment,etc.) ROSELIZA HAMID/UITM KELANTAN/2009

12. BENEFITS-IN-KIND (BIK) • The gains/profits from an employment chargeable under Section 13 of the Income Tax Act 1967 have been defined to include the value of any BIK provided for the use or enjoyment by the employee. • Motocars and related benefits • Household furnishings, apparatus & appliances • Others (HP,gardeners,domestic servants, etc.) ROSELIZA HAMID/UITM KELANTAN/2009

13. EXEMPTION • Tax exempted for individuals: • Leave passages • Medical and dental benefit • Retirement gratuity • Compensation for loss of employment • Pensions • Death gratuities • Scholarships • Income from cultural performances approved by Minister • Interest • Dividends • Royalties • Income remitted from outside Malaysia • Fees or honorarium for expert services • Income derived from research findings ROSELIZA HAMID/UITM KELANTAN/2009

14. DEDUCTION ROSELIZA HAMID/UITM KELANTAN/2009

15. RELIEF & REBATE • Personal tax relief • http://www.hasil.gov.my/lhdnv3e/individuIndex.jsp?process=21000&menu=34&expandable=1&pg_title=Tax%20Relief • Tax rebate • http://www.hasil.gov.my/lhdnv3e/individuIndex.jsp?process=21000&menu=42&expandable=1&pg_title=Tax%20Rebate ROSELIZA HAMID/UITM KELANTAN/2009

16. TYPE OF ASSESSMENT • Separate assessment • All income of a married women is automatically assessed separately from that of her husband and no election is required • Combined assessment • The wife/husband can elect to have their total income to be combined and assessed either in the name of husband or wife. • Separation/Divorced Cases • The husband continues filling his tax return under his own tax reference number. Assessed as an individual. • The wife reverts to her former tax status prior to the marriage .Previous tax file reopen/register new file if none. • The wife file her own separate tax return and report her own income including alimony, if any. ROSELIZA HAMID/UITM KELANTAN/2009

17. DECEASED INDIVIDUAL Tax treatment on deceased individual: • The income for the particular year up to date of death will be assessed separately. • The notice of assessment will be issued in the name of the legal representative. • The income accrued in the particular year after the date of death constitute the income of the estate of the deceased and is assessed in the name of the executor or administrator of the estate. ROSELIZA HAMID/UITM KELANTAN/2009

18. MALAYSIAN TAX RATE • Income tax rates for resident individuals range from 0% to 28%. • http://www.hasil.gov.my/lhdnv3e/individuIndex.jsp?process=21000&menu=13&expandable=1 • Non-resident individual rates: 28% • Companies rates: 26% • Trustee: 26% • Executor: 26% • Deceased person’s estate, associate & club: same as individual • No-resident association: 25% ROSELIZA HAMID/UITM KELANTAN/2009

19. Calculating on tax payable Compute total aggregate income Compute assessable income Compute chargeable income Compute gross tax payable Compute net tax payable TAX PLANNING STRATEGY ROSELIZA HAMID/UITM KELANTAN/2009

20. TAX EVASION vs AVOIDANCE • Tax evasion • Tax evasion involves deliberately and willfully hiding income, falsely claiming deduction. • It is illegal and will results in penalties, fines, interest charges and a possible jail sentence. • Tax avoidance • Reducing tax liability through legal techniques. • Involves applying knowledge of the tax code and regulations to personal income tax planning • Results in reducing tax liability hence more money for spending, saving, investing and donating. ROSELIZA HAMID/UITM KELANTAN/2009