Taxation In Malaysia Case Study

Introduction

Taxation in Malaysia was declared by the British into the Federation of Malaya in 1947. Initially, the Income Tax Ordinance 1947 was gazetted as the dominant act, but was subsequently rehabilitated and ultimately converted by the Income Tax Act 1967 (ITA) which took effect on January 1, 1968. The Malaysian taxation system is broadly split into two: direct taxes and indirect taxes. Direct taxes are under the authority of the Inland Revenue Board of Malaysia (IRBM). The IRBM is accountable for all policies pertaining to direct taxes such as individual and business income tax, real property gains tax, petroleum income tax and stamp duty. Indirect taxes are controlled by the Royal Malaysian Custom Department (RMCD) and it consists of excise duty, custom duties, service tax and sales tax. From the government view, taxation is a vital economic instrument because it will be utilized to regulate the economy, to restore economic growth through the granting of fiscal incentives as a major goal of implementing tax policies and to provide funds for development tasks. Table 1.1 shows the total Malaysian Federal Government Revenues for the year 2012 and 2013. In 2013, the

Sales taxes are imposed when a product is sold to its final customer (refer to Figure 1.3). The Royal Malaysia Custom Department (RMCD) is responsible to implement law and sales tax collection in Malaysia. There are two types of sales tax which consist of local sales tax and import sales tax. Local sales tax refers to local products that are manufactured in Malaysia by licensed manufacturer and levied when those products and goods sold, used or disposed. While imported sales tax exists for products or goods imported into Malaysia and collected whenever the goods entered the Malaysia border (Salleh, 2009). The implementation of sales tax in Malaysia is applied as a single-stage