The main aims of implementing tax policies are to ensure the government has enough money to fund government spending on projects, which are beneficial to the country.
THE NATURE AND PURPOSE OF TAXATION
Taxes are the most important source of governmental income. Taxes differ from other sources of income in that they are compulsory tax and are unreturned, they are not paid in exchange for some specific thing, such as the sale of public property or the issue of public debt. While taxes are apparently collected for the sake of the welfare of taxpayers as a whole, the liability of the individual taxpayer is free of any benefit received.
According to www.uv.es, taxpayers are commonly charged on employee income in order to fund retirement benefits, medical payments, other social security programs and other tax relief.
In Malaysia taxes are divided into two which is direct and indirect taxation. Direct taxation consists of income tax, real property gains tax, stamp duty, petroleum income tax and as well as film hire duty. While indirect taxation is services tax, sales tax, custom duty, excise duty, entertainment tax and also gaming tax. These are administered by different entities. Direct taxation by the Inland Revenue Board, while indirect taxation by the Royal Customs Department.
The major tax purpose is revenue which it's the governments took from the taxpayers. Throughout taxation, the government raises money to fund activities such as repairing roads raises funds for hospitals and schools, providing superior infrastructure as well as providing better public transport such as KTMB, Bus and Taxi. In the same way, the revenue that collected indirectly will be finances by government for the purpose such as regulation of market or the justice systems.
MALAYSIAN TAX ENVIRONMENT
The Malaysian tax environment is governed by Section 3 of the Income Tax Act.
"Subject to and in accordance with this Act, a tax to be known as income tax shall be charged for each YA upon the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia."
The tax is a source of income for the government to discharges its appropriate functions for the protection and general welfare of the citizens. For example, the funds used to develop infrastructure, provide best public facility, pay salary for the army, public servants, and so on.
Malaysian Income Tax Act does not define income. It classified income under section 4 of the Act according to classes, as follows:
Gains and profits from trade, profession and business
Salaries, remunerations, gains and profits from an employment
Dividends, interests or discounts
Rents, royalties or premiums
Pensions, annuities or other periodic payments
Other gains or profits of an income nature not mentioned above.
Encik Daniel, a resident in Malaysia is subject to Malaysian taxation. He will be taxed according to Income Tax Act 1967 (Act 53/1967) (ITA 1967). In accordance to Section 13 (a) of the Act, salaries, remunerations, gains and profits from an employment will be taxed. As an employee, Encik Daniel will have Section 4(b) employment income. He will be taxed under Section 4(b). Below explain the details about the En Daniel Taxation Principles:
Due date for submitting Tax Return for the Year Of Assessment Of 2009.
According to Inland Revenue Board of Malaysia, for individuals without business source which is BE Form, the due date is submitted on or before 30th April 2010 for YA 2009. This had been legislated by the government of Malaysia. If Encik Daniel did not submit the BE Form by 30th April 2010, he will has to pay penalty. In the scenario, Encik Daniel works as an manager earning monthly salary of RM10,000. This is income. The income earned by Encik Daniel is a form of direct tax.
How the tax payment will be made to his employment income?
Encik Daniel is an employee for a private company which he had work from the year of 1992. His tax payment will be made by his employer by using the Scheduler Tax Deductions. Based on Inland Revenue Board, Scheduler Tax Deductions is an income tax deduction mechanism from employee's current monthly remuneration in accordance with the schedule of monthly tax deductions. This requirement for employers is under Section 107 of ITA 1967. Encik Daniel's employer will make a monthly deduction to reduce the employee's burden to pay the tax. As shown in the calculations parts, Encik Daniel needs to pay in total of RM 31,603.00. It is a burden for his to pay all the tax in a lump sum. So by practicing the STD method, it will help Encik Daniel to reduce his burden to pay the tax charge towards him.
Due Date for paying the tax in balance of any tax due.
If there any tax balance need to pay off, Encik Daniel must made the payment by 30th April 2010. Under the section 103 Income Tax Act 1967, any tax due and payable but has not been paid by the taxpayer by the due date shall be increased by 10% under subsection 103(3) ITA 1967 and any balance remaining unpaid upon the expiration of 60 days from the due date shall be further increased by 5% under subsection 103(4) ITA 1967 of the balance unpaid.
The Timeframe for a valid appeal against an assessment
A taxpayer must lodge an appeal to the IRB within 30 days of the deemed assessment on submission of tax return.
If the Inland cannot come to an agreement with Encik Daniel in the case of an appeal, to whom the appeal will be forwarded for determination?
If Mr. Daniel disagrees with the high tax charged on him, he may appeal to the Special Commissioner of income tax for the first determination. If Mr. Daniel is still dissatisfied with the decision, he may forward to the High Court. If Mr. Daniel agreed with the decision by High Court, the case will be closed. However, if the result is not behalf on his side, he may further to Appeal Court for the determination. Finally, Mr. Daniel may bring the case to the Federal Court to clarify in depth to get final decision. For example, we assume that Mr. Daniel won the case, he able to reduce the amount of tax charged.
Encik Daniel
Income tax Computation
Year Assessment 2009
RM
RM
First Company( 14th Jan 2009-30th Jun 2009)
S4 (b) Employment income
S13 (1) (a)
Gross salary (8,600 + 300 ÷ 0.89 Ã- 6)
60,000
Gratuity (Exempted)
Nil
S13 (1) (b)
Watch (Exempted)
Nil
Furniture
560
Medical expenses (Exempted)
Nil
Holiday Packages:
Air Fares
10,000
Accommodation (Exempted)
Nil
10,560
S13 (1) (c)
Lower of:
30% of 60,000 Ã- 4÷ 6 = 12,000
Rental for unfurnished House:
1,200 Ã- 4 = 4,800
4,800
S13 (1) (d)
Withdrawal from unapproved fund
Employer's
40,000
Interest Earned
10,000
50,000
Total income
125,360
Second Company (1st Aug 2009- 31 Dec 2009)
S4 (b) Employment income
S13 (1) (a) :
Director fees (10,000 Ã- 5)
50,000
Entertainment Allowances (1,000 Ã- 5)
5,000
55,000
S13 (1) (b):
Mobile phone
Exempted
Motor car (5,000Ã- 5/12)
2,083
Driver (600Ã- 5)
3,000
Servant (400Ã-4)
1,600
Gardener (300Ã- 4)
1,200
7,883
S13 (1)( c) :
August (Hotel) (250Ã-31)
7,750
Unfurnished house (2,000 Ã- 4)
8,000
15,750
Aggregate income/Total income
78,633
Less: Approved donation
(2,000)
Total income
Tax Computation:
Total income
201,993
Less: Personal reliefs
Self relief
8,000
Medical examination
500
Child relief :
Second Child
4,000
Third child
9,000
Fourth child
1,000
Wheel chair
1,100
Books
900
Personal computer
3,000
Medical expenses
4,500
EPF & insurance premium (300 Ã- 12)
6,000
38,000
Chargeable income
163,993
Puan Sara
Income tax Computation
Year Assessment 2009
RM
RM
RM
S4 (d) Rental income
Monthly Rental (900 Ã- 12 )
10,800
Less : Expenses
Installation of kitchen cabinet
Nil
Repairs ad maintenance
1,200
Interest on loan
5,000
Fire insurance
900
Quit rent
700
7,800
3,000
Less: Approved donation
500
Total income
2,500
Total income
2,500
Less: Personal relief
(2,500)
Chargeable income
Nil
Tax payable by Encik Daniel for year assessment of 2009:
Total Income = RM 163,993
1st RM 150,000 = RM27, 825
Next 13,993@ 27 % = RM 3,778
Tax payable = RM 31,603
TAX PLANNING OPPORTUNITIES
From the computation that has been done we found out that Encik Daniel tax payable is RM31603 while Puan Sara is NIL. Consequently the total tax payable for Encik. Daniel is high. In order to reduce the amount of tax payable or to save additional money from the taxes Encik. Daniel have to do some tax plans and arrangement for his planning affairs. As a result we can come out with few suggestions in order to reduce the tax chargeable.
Savings
Go for Joint Assessments
Benefits in Kind
Personal Reliefs
PERSONAL RELIEF
Table below shows about the Mr. Daniel reliefs for the year assessment of 2009. There is also the suggestion column which is recommendation for him in order to reduce the total tax charged by increasing the total reliefs.
RELIEFS
2009
SUGGESTION
Medical examination
RM800
RM500
Purchase of books or magazines or journals
RM900
RM1,000
Purchase of personal computer
-
RM3,000
Net deposit in "Skim Simpanan Pendidikan Nasional"
-
RM2,000
Purchase of sport equipment
-
RM200
Medical insurance
RM3,000
RM3,000
Medical Expenses for own Parents
RM4500
RM5000
Education Fees
-
RM5000
Total Relief
RM9200
RM19700
Total Income
RM201993
RM201993
(-) Total Relief
RM 9200
RM 19700
Chargeable Income
RM 192733
RM 182293
Tax on the First RM 150000
RM27825
RM 27825
Tax on Balance
RM 11538
RM 8719
Total Tax Charged
RM 39363
RM 36544
Based on the table above we can conclude that the actual chargeable income is RM 192733 while based on our suggestion is RM 182293. The difference between these two chargeable incomes is RM 10440. Consequently he is able to reduce the total tax charged worth RM 2819.
BENEFITS IN KIND
According to the Section 13(1)(b) of the Act, the benefits are not convertible into money. These benefits are provided by the employer for their employees. There are two conditions of leave passage which is applicable for Encik Daniel.
First his employer will give fully support for meals and accommodation if Encik Daniel and family travel in Malaysia for three times. If exceeding more than three times, Encik Daniel has to choose the three most expensive bills to get an exemption.
While second condition is applicable for one leave passage. This travel is between Malaysia and overseas. His employer will support him at maximum of RM3000 for his one leave passage. Both benefits in kind are provided direct for En Daniel, Puan Sara and their children.
EN. DANIEL SHOULD GO FOR JOINT ASSESSMENT
Since the tax chargeable for Encik Daniel is high they can elect to go for joint assessment since his wife Puan Sara only having a small portion income. Here the solution showed the comparison between elect for joint assessment and otherwise.
Total income
RM
RM
Encik Daniel
201,993
Puan Sara
2,500
Total Income of Joint Assessment
204,493
Less: Personal reliefs
Self Relief
8,000
Medical Examination
500
Child relief :
Second Child
4,000
Third child
9,000
Fourth child
1,000
Wheel chair
1,100
Books
900
Personal computer
3,000
Medical expenses
4,500
EPF & insurance premium (300 Ã- 12)
6,000
Spouse Relief
3,000
(41,000)
Chargeable Income
163,433
1st RM 150,000 = RM 27,825
Next 13,433@ 27% = RM 3,627
Tax payable = RM 31,452
Tax Payable with joint assessment
Before Joint Assessments = RM 31,603
After Join Assessments = RM 31,452
Different = RM 151
The different of tax payable by Encik Daniel before and after go for joint assessments.
Based on the tax planning above if En Daniel elects to go for joint assessment he can absolutely reduce their tax up to RM151 which is a little less than the original tax chargeable.
SAVING
Encik Daniel can come out with a plan by making up some savings in the approved financial institutions. From his savings, Encik Daniel is able to earn dividends. This dividend income is fully exempted from been taxed.
Therefore, Encik Daniel is able to reduce the total chargeable income and also pay less for tax payable. Once the dividends income is exempted from been taxed, it encourages resident to make savings in the future.
PARTNERSHIP
INTRODUCTION
Partnership can be defined as a legal relationship which subsists between two or more persons who carry on a business in common with the object of making a profit (Veerinderjeet singh 2008). The partnerships consist of two to twenty persons. It can be more if they are among professional. The main objective of partnerships is to carry out on business and make profits. Based on the scenario, both Ng and Siow are considered as "Partners". The organization names Ng educational must register with registrar of business unless an exemption is given. The partnership between Ng and Siow is considered
THE LAW GOVERNING THE TAXATION OF PARTNERSHIP AND HOW THE PARTNERSHIP IS TAXED?
According to the section 2 of the Act, partnership exist when they want to carry on a business, willing to share rights and responsibility, profit and risk. Partnership does not pay any tax but sharing of profits from partnership will be taxed. Each partner is responsible for the tax on the share of partnership profit. In self assessment computation, tax returns of Ng and Siow must include their share of partnerships profit and loss.
Income Tax Computation
NS Education Partnership
Year Assessment 2006
Net profit per account
RM
Add: Non-allowable expenses
private use of car by Siew
2,400
(12,000Ã- 20 %)
Donation
19,000
Depreciation
24,000
Interest on capital
10,800
Partner's salaries
154,000
Trade Exhibition
(8,700)
Provision adjusted income
Less: Partners salaries
150,000
Interest on capital
10,800
private use of car
2,400
Divisible income
Computation Of Each Partner Income
1.1.06-31.3.06 (3 months)
NG
(RM)
Siow
(RM)
Profit sharing ratio
50%
50%
Private expenses
-
600
Salary
22,500
15,000
interest on capital
1,500
1,200
Divisible income
20,000
20,000
1.4.06-31.12.06 (9 months)
Profit sharing ratio
60%
40%
Private expenses
-
1,800
Salary
67,500
45,000
interest on capital
4,500
3,600
Divisible income
72,000
48,000
Less : Approved donation
(7,800)
(5,000)
Annual allowance
(5,400)
(3,600)
174,800
79,600
